PepsiCo, Inc.

I

Introduction

PepsiCo, Inc., major producer of carbonated soft drinks, other beverages, and snack foods. Its beverage division, Pepsi-Cola Company, bottles and markets several popular brands of soft drinks in the United States and throughout the world. PepsiCo also owns Frito-Lay Company, the leading snack-food maker in the United States. PepsiCo is based in Purchase, New York.

PepsiCo’s soft drink products include Pepsi, Diet Pepsi, and Mountain Dew. Other beverages include Lipton Brisk and Lipton’s Brew iced teas, All Sport athletic drink, and Aquafina bottled water. Frito-Lay products include Lay’s and Ruffles Potato Chips, Fritos and Doritos Corn Chips, Chee-tos Cheese Snacks, Tostitos Tortilla Chips, Rold Gold Pretzels, and Grandma’s Cookies.

II

Early History

PepsiCo traces its origins to 1898 when Caleb Bradham, a pharmacist in New Bern, North Carolina, created a curative drink for dyspepsia called Pepsi-Cola. Pepsi-Cola, later referred to simply as Pepsi, was a mixture of carbonated water, cane-sugar syrup, and an extract from tropical kola nuts. To sell his product, Bradham formed the Pepsi-Cola Company in 1903. In addition to selling the drink at drugstore counters, Bradham bottled Pepsi for sale on store shelves. At this time, bottling was a new innovation in food packaging.

However, due to major increases in the price of sugar, Bradham began to lose money on Pepsi, and in 1923 he filed for bankruptcy. The Craven Holding Company of Craven County, North Carolina, purchased the company’s assets. In 1931 Charles G. Guth of the Loft Candy Company in New York City purchased Pepsi-Cola from the holding company. Guth had difficulty getting the business going again, but he increased sales by selling larger bottles at an unchanged price. By 1933 Pepsi-Cola was sold by 313 franchised U.S. dealers; bottled in the United States, Cuba, and England; and sold in 83 countries.

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PepsiCo’s snack-food business dates from 1932 when ice-cream seller Elmer Doolin of San Antonio, Texas, developed a business idea after eating a package of Mexican-made fried corn chips. He purchased a recipe for the chips and established the Frito Company in 1932. Originally, Doolin produced Frito’s corn chips in his mother’s kitchen. He later mechanized production and moved operations to Dallas, Texas, in 1933. Around the same time, Herman Lay of Nashville, Tennessee, developed a business distributing potato chips made by an Atlanta manufacturer. In 1938 Lay bought the manufacturing company, renaming it H. W. Lay & Company. The company prospered, becoming one of the largest producers and distributors of snack foods in the southeastern United States. The company made and sold many snack foods, but its best-seller was its brand of potato chips, known as Lay’s. In 1945 the Frito Company gave H. W. Lay & Company exclusive Southeast distribution rights for Frito’s corn chips, a market both companies hoped to expand nationwide. After continuing their close business association for over 15 years, the two companies merged in 1961 to become Frito-Lay, Inc., with headquarters in Texas.

III

Growth

The Pepsi-Cola Company, meanwhile, had changed hands several times and grown greatly since 1933. The Loft Candy Company merged with the company in 1941, keeping the Pepsi-Cola name. About this time, Pepsi became the second-best selling soft drink in America behind its chief market rival, Coca-Cola (popularly known as Coke). In 1948 the Pepsi-Cola Company began canning drinks in addition to selling them in bottles. Alfred Steele, formerly an executive with the Coca-Cola Company, became president of the Pepsi-Cola Company in 1950. Former amateur boxer Donald Kendall took over as company president and chief executive officer (CEO) in 1963 and began marketing Pepsi to young people in an advertising campaign called “The Pepsi Generation.” The company acquired another popular soft drink, Mountain Dew, in 1964. In 1965 the Pepsi-Cola Company merged with Frito-Lay, Inc., to become PepsiCo, Inc., based in New York City. As president and CEO of the newly merged company, Kendall later moved the corporate headquarters to its current home in Purchase, New York.

In 1972 PepsiCo struck a deal with the Union of Soviet Socialist Republics (USSR), allowing the company to distribute Stolichnaya vodka in the United States and to build soft-drink bottling facilities in the USSR. Pepsi thus became one of the first American products to be made and sold in the Soviet Union. In the late 1970s the company began to purchase fast-food chains. It acquired Pizza Hut in 1977, Taco Bell in 1978, and Kentucky Fried Chicken (later named KFC) in 1986.

IV

The Cola Wars

PepsiCo’s leading soft drink, Pepsi-Cola, and its chief rival, Coke, have dominated the soft-drink market for decades, although Pepsi has traditionally remained behind Coke. In 1950 Coke outsold Pepsi by 500 percent worldwide. But Pepsi’s aggressive advertising campaigns aimed at young consumers and major bottling and marketing deals made Pepsi a close rival to Coke by the 1980s. PepsiCo has also enjoyed great success with its canned and bottled Lipton brand iced teas, earning higher sales than the Coca-Cola Company’s Nestea products. Also, in the United States, Pepsi had virtually an even market share with Coke in the mid-1980s, when the Coca-Cola Company changed the formula for Coke. (It later reintroduced the original formula under a new name, Coke Classic.) However, as Coke regained popularity worldwide in the late 1980s and into the 1990s, it again became the global soft-drink leader. In 1996 Pepsi-Cola International, PepsiCo’s international beverage production and marketing division, suffered difficulties in Latin America, one of its most important markets. The company was particularly hurt by the loss of a bottling plant to the Coca-Cola Company in Venezuela.

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