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Pepsico Case

In: Business and Management

Submitted By bmathew93
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Becca Mathew 3/10/2014 PepsiCo Restaurants Case
In the PepsiCo’s Restaurants case, PepsiCo must evaluate the potential acquisition of Carts of Colorado and California Pizza Kitchen. The acquisition of these restaurants would expand PepsiCo’s restaurant business, but PepsiCo must consider how each deal will affect the scope of the firm and potential synergies in each deal before making a decision to acquire these firms or not. There are several potential synergies in the Carts of Colorado (COC) deal. Specifically, there are operational synergies and financial synergies, along with a little strategic synergy. There is operational synergy because acquiring COC would create economies of scope. There could be shared resources or activities because PepsiCo could sell items, or at least similar items, from their other restaurants on these food carts. There is some strategic synergy in this deal because making this deal would mean entering a new market, the food cart industry, to extend market power. Even though food carts are also fast food, it is in a new segment that PepsiCo has not yet experienced. Financial synergies are also evident in this deal with COC because since they nearly tripled its income in one period, they could be a valuable asset. By investing in it, PepsiCo will be able to gain much revenue and capital from a new source. For California Pizza Kitchen, there are operational, strategic, and financial synergies. In terms of operational synergies, there are economies of scope because there are shared activities and items, like different kinds of pizza. There are strategic synergies because PepsiCo would be entering a new industry of dining as opposed to fast food to expand market value. There could also be a replication of corporate management tasks and real options by increasing flexibility for future growth and learning opportunities. With the help of PepsiCo, CPK will definitely have more potential for expansion and growth. Financial synergies are also evident in this deal with CPK because they have increased their revenue by 44%, making them a desirable acquisition with potential for growth. If PepsiCo acquires Carts of Colorado, they will gain a competitive advantage in the industry. It will be able to enter into a market that its competitors have not yet entered. PepsiCo will be able to appeal to and target a whole new group of customers and even customize the carts for its fast food chain. Another positive is that the fast food cart market is already aligned with PepsiCo’s current quick service strategy. Still, there are negatives to acquiring Carts of Colorado. For one, PepsiCo might end up having to focus on too many different strategies and product markets instead of focusing on their current ones. If PepsiCo acquires California Pizza Kitchen, they will be able to target a new consumer market of middle class, suburbanites. Also, they will be able to increase their market power in the casual dining segment, instead of the fast food segment. Yet, they will lose their quick service ideal because CPK focuses more on sit down service. Overall, I suggest that PepsiCo acquire COC and CPK because the positives outweigh the negatives. They have been thriving companies so far and with PepsiCo, they will be able to thrive even more, while expanding their companies using their own ideas and values.…...

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