Angus Gambill Case Analysis 4 March 12, 2013

1. Types of Diversification 1.1 California Pizza Kitchen While California Pizza Kitchen is no Taco Bell, Pizza Hut, or KFC, it is a fast food restaurant in the sense that the food is affordable, the time spent at the restaurant is minimal, and despite being better than typical fast food, the offerings are not upscale. The acquisition of Californian Pizza Kitchen would be a form of related diversification in the sense that the pizza company produced similar products to those of the other fast food brands. Effective tactics employed in California Pizza Kitchen or any of PepsiCos other restaurants could have led to an economies of scope advantage. While California Pizza Kitchen delivers superior service, any of the other restaurants already in PepsiCos portfolio may have other advantages such as lower costs or things such as drive through windows. In this sense, PepsiCos existing restaurants and California Pizza Kitchen could leverage core competencies to better all of the brands. The potential for sharing activities such as cost savings also exists across these different brands. The acquisition of California Pizza Kitchen would also lead to increased market share that may have been eroded from Pizza Hut due to some similarity of product offerings. California Pizza Kitchens high growth and positive revenue streams indicate that the higher end pizza business is on that is moving from a question mark to a star on the portfolio matrix. 1.2 Carts of Colorado While Carts of Colorado produces carts that allow for food distribution similar to that of a restaurant, many aspects of the business model differ entirely. The acquisition of Carts of Colorado would be a form of unrelated diversification in the sense that the cart company produced carts and sold them to many different end users throughout the United States including Disney and Coca-Cola. PepsiCo may have had intentions of using these carts in existing restaurant chains, but the acquisition of a cart producing company was outside of the scope of their restaurant business. In this sense, PepsiCo could have achieved a parenting advantage by purchasing Carts of Colorado. If PepsiCos insight into the fast food preparation business were greater than that of Carts of Colorado, the design and efficiency of the carts could be improved. In only six short years, Carts of Colorado grew from low five digit net income to nearly three quarters of a million. This high growth along with interest from companies such as Disney and Coca-cola indicate that the cart business is one that is moving from a question mark to a star on the portfolio matrix. 1.3 Stronger Acquisition While both companies are within or moving into the star portion of the portfolio matrix, one is within the scope of PepsiCos current operations and the other is not. California Pizza Kitchen delivers a fast food product with better presentation and higher quality to a slightly more affluent customer. Carts of Colorado builds and sells food carts to companies large and small throughout the United States. While both acquisitions could prove to be profitable, unless PepsiCo has the intention of employing the carts within the existing restaurant brands, the costs associated with entering into an entirely new market could be costly. Additionally, the lack of synergies that exist between PepsiCos current operations and the operation of a cart producing company could stand to be costly as well. California Pizza Kitchen on the other hand is in much the same business that PepsiCos other restaurants already engage in. The synergies, cost savings, shared core competencies, and other similarities among the business models could allow for relatively simple integration into PepsiCos portfolio, greater market share of the fast food industry, and diversification into a new market.