PepsiCo strives for top performance


PURCHASE, N.Y. -- By most standards, PepsiCo Inc. had a decent year in 1994 -- sales were up almost 14 percent, and operating profits increased 10 percent.

But by Wayne Calloway's standards, it was a disappointing performance. The chairman of PepsiCo expects operating profits grow by 15 percent a year, and Wall Street expects the company to meet that goal.

"It just means we redouble our efforts to make it up in the next couple of years," Mr. Calloway said recently, adding that the 15 percent goal may be reachable in 1996.

From his office overlooking PepsiCo's landscaped and heavily sculptured headquarters campus a few miles north of New York, Mr. Calloway oversees a far-flung empire of consumer products.

Within its three basic businesses of beverages, restaurants and snack foods, the company owns some of the world's leading brand names: Pepsi, Frito-Lay, Taco Bell, KFC (formerly Kentucky Fried Chicken) and Pizza Hut.

All three segments are wedded to Mr. Calloway's basic premise that a growth company such as PepsiCo has to embrace change to grow. Standing still means falling behind.

"Someone once said that insanity is doing the same thing and expecting different results," Mr. Calloway says. "As fast as the world is changing today, we may be talking about continuous transformation around here."

The search for new products stretches from soft drink packaging -- where the 24-can Cube has been a big hit with consumers -- to a steady stream of new salty snack products, to co-branding products with hot concept companies such as Starbucks Corp., which is building coffee shops from coast to coast. PepsiCo is even considering acquiring a fourth business to add to its portfolio.

"It takes a lot of innovation and a lot of energy to keep this company growing," says Craig Weatherup, chief executive officer of Pepsi-Cola North America.

While PepsiCo trolls for new customers, Wall Street will be watching closely. Given the company's track record, analysts say the outlook for the future is encouraging.

"There's a lot of people in this world who want to eat, drink and snack, and PepsiCo can fulfill those needs every day," said David A. Presson, an analyst with Edward D. Jones & Co. "I don't think that will change anytime soon."

PepsiCo's recent problems have been tied to the sluggish sales in its restaurant divisions, particularly Pizza Hut. There was even talk on Wall Street earlier this year that the restaurant chains might be sold.

Instead, they were reorganized, with former Frito-Lay Chief Executive Roger Enrico -- now vice chairman of PepsiCo -- assuming overall responsibility for the dining chains and direct responsibility for international restaurants. One of Mr. Enrico's first moves was to begin a shift away from company ownership of restaurants in favor of increased franchisee ownership. He also unveiled plans to refurbish restaurants more often.

So far this year, Pizza Hut sales have rebounded strongly, driven mainly by strong sales of the new stuffed crust pizza.

The results haven't been as great for Taco Bell's low-fat Border Lites products, and KFC is fighting a tough battle in an extremely competitive niche.

Besides the Cube -- a case of cola that fits neatly in the refrigerator -- Pepsi-Cola has fished for new customers with the Big Slam, a one-liter bottle with a wide mouth and commercials featuring pro basketball star Shaquille O'Neal.

Other Pepsi initiatives: Pepsi XL, a mid-calorie drink with half the calories of regular Pepsi, is in test market in Florida; Mazagran, a carbonated coffee beverage developed in partnership with Starbucks, is in test markets in Southern California. And Smooth Moos Smoothies, a line of dairy-based bottled shakes, is being tested in Texas and Oklahoma.

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