Pepsi-Cola and its Diversification Strategy

Who would never come across the name of PepsiCo in these present days? PepsiCo is a beverage brand name that has 100 years of history. It was started after there was a pharmacist called Caleb Bradham in the town of New Bern in North Carolina of the United State of America at year of 1896, when he tried to create drinks that would be delicious, healthy, aiding digestion and boosting energy. One of the drinks turned out to be very popular to his customer and was called as Brad’s drink.

Brad’s business was small and just conducted within an immediate territory. His business came to a change when the drink was named as “Pepsi” by the year of 1898 and was given its first logo and patented trademark. The hit of people going after Pepsi has given chances for Brad to transform the company into a fully-fledged business in the year of 1902.

From the year 1903 to 1908 it seems to be no problem at all for Pepsi-Cola to grow its popularity as a new soft drink in the markets. Not until the end of World War I when the price of sugar began to fluctuate wildly and caused Pepsi-Cola to bankruptcy in the year of 1923. On 7 March 1923, Roy C. Megargel paid $35,000 to the Craven Holding Corporation whom bought over Pepsi-Cola trademark and assets at auction for $30,000.

But after a few years, Megargel once again fail to lead Pepsi-Cola and caused Pepsi-Cola to suffer from agony loss or bankruptcy in the year of 1931. Pepsi-Cola then was taking over by Charles G. Guth and eventually started the most famous “Cola Wars”. During the moment of Charles G. Guth was an executive from the Loft Candy Company. The Coca-Cola Company had make Guth a victim as the Coca-Cola Company refused to give him a jobber's discount on syrup served at over 138 candy stores in the greater New York area. So in response to this snub, Guth purchased the sole rights to the trademark and the assets of the defunct Pepsi-Cola Company for $10,500 as well as to reformulate the formula for Pepsi-Cola syrup.

Guth successfully to bring Pepsi-Cola up to the front line with Coke-Cola and has become second largest soda beverage company in World even during the time of World War II. However Pepsi-Cola still lost to Coke-Cola until Pepsi-Cola was lead by Donald Kendall in the year of 1963.

Donald Kendall was the first person in Pepsi-Cola to implement diversification strategy in managing and leading Pepsi-Cola. First of all Donald Kendall started to imply the related diversification strategy by introducing new taste of Pepsi of which was the Patio Diet Cola. The type of cola that is without sugar and zero calories; but to contain the artificial sweetener aspartame; and it can be either sold with or without caffeine. Later on it was being replaced by Diet Pepsi-Cola in the year of 1964.

However this implementation of diversify related products did not help much in increasing Pepsi net sales and in winning sales from its competitors. This is because when Pepsi diversify its single line product of classic cola with two line product of Diet Pepsi-Cola, its competitors such as Coca-Cola would be doing the same thing of coming up with its new line product or Diet Coke. So in order for Pepsi-Cola to be able to achieve its specific goals of becoming World Number One beverages and to guarantee Pepsi long-term sustained achievement of "fast profitable growth" for their business.; they have to keep up with a rapidly increasing diversified global market and increased competition.

Donald Kendall as the CEO of Pepsi-Cola during that moment has also noticed the critical competitive advantage issue that was facing by Pepsi-Cola. So he led Pepsi-Cola to take a horizontal integration by taking over one of the Pepsi-Cola competitors, the Tip Corporation of America which producers of "Mountain Dew" in the year of 1964.

After taking over of “Mountain Dew”, Donald Kendall tended to apply the unrelated diversification by approaching Herman Lay the Frito-Lay’s CEO, in the year of 1965 with a proposition, “You make them thirsty and I’ll give them Pepsi.” With this complementary of Pepsi-Cola and Frito-Lay, then PepsiCo, Inc. (PepsiCo) was born and to be able to stay strong with Coke to continue the “Cola War”.

This is one of the greatest jobs that Donald Kendall brought to Pepsi-Cola, as this merger allowed PepsiCo to become one of the world’s largest manufacturers, marketers, and wholesalers of beverage and food products. This merger has given PepsiCo territories of at least 142,000 employees which operated in nearly 200 countries.

Undeniable that with this merger has helped Pepsi-Cola a lot especially to stay firm in size and to gain competitive advantages from the markets. However with this merger it has brought Pepsi-Cola into a more high competitive rivalry with others companies especially the four big organizations of which are the Coke, Proctor and Gamble, Lance and Kraft; that has nearly created an oligopoly market situation where by there only 4 suppliers with intense rivalry to supply for the snack and convenient food market.

In order for PepsiCo to gain strength and to be more competitive in the market, beside as part of this merger, PepsiCo has experienced growth in product diversification and distribution through the acquisition process. These acquisitions have included merger that is combining of two or more companies into a single corporation; such as merger PepsiCo with Quaker Oats, merger PepsiCo with Crack Jack sweet snack food, and merger PepsiCo with Tropicana brand juices; this is to expand PepsiCo’s economies of scale.

In addition, PepsiCo also acquired into several restaurants applying related diversification through forward integration, this is because restaurant is one of the distribution channel to supply soft drink to consumers. Pepsi acquired those most notably restaurants, such as Pizza Hut, Taco Bell, and Kentucky Fried Chicken, to form PepsiCo Food Service International (PFSI) in order for PepsiCo to focus on overseas development of restaurants.

In the recent year PepsiCo also applied the backward integration of related diversification strategy, by establishing its own bottling group through the Pepsi Bottling Group (PBG) Strategy in March 1999.

So what benefits that PepsiCo gain from applying these diversification strategies of merger and acquisition in diversifying and expanding its markets? Did PepsiCo suffer any cost from this implementation?