Detergents, Aisle 2. Pizza Hut, Aisle 5Amy Barrett
If the cola business has a Holy Grail, it's shelf space. For decades, the industry giants have tried to beat competitors by squeezing them out of supermarket aisles. Now, PepsiCo Inc. is on the same quest in fast food. Its wholly owned fast-food restaurant chains--Pizza Hut, Taco Bell, and KFC--are already visible on many street corners in America. Next, the Purchase (N.Y.) cola giant wants virtually every American whose stomach growls to be within easy reach of a meal made by PepsiCo--whether there's a restaurant around or not. "It is really the mentality of the soft-drink business: Be ubiquitous in distribution," says Ronald N. Paul, president of Chicago-based food-industry consulting firm Technomic Inc.
That's why travelers at Minneapolis International Airport's Gate 5 see both a Pizza Hut and a Taco Bell. Food shoppers at the Gooding's supermarket in Orlando can stop at a take-out counter selling all three PepsiCo brands. In some supermarkets, customers can even sit down to eat before heading for the produce aisle.
PepsiCo has little choice but to chase food customers in new places. A glut of fast-food joints across America has taken its toll, shrinking industry sales growth to 5% annually from double digits in its mid-1980s heyday. To speed up slowing growth in its $8.2 billion fast-food operation, PepsiCo must branch out beyond the 22,000-plus restaurants that fly its flags worldwide (chart). The push is especially urgent now that some fizz has gone out of the core soda unit, where growth is less than half of what it was in 1989.
Bringing fast food where consumers live, work, and play is hardly new. McDonald's Corp. has been serving up Big Macs in hospitals and at highway rest stops for years, and Little Caesars has 440 kiosks in Kmarts across the country. But if PepsiCo has come late to the party, no one has arrived with more energy. In fact, competitors that don't respond to the relentless spread of its brand names may find themselves squeezed out of consumers' minds.
Today, Pizza Hut and Taco Bell combined have over 650 so-called unconventional sites, compared with about 200 for McDonald's and 96 for Burger King Corp. Even KFC's management, which for two years has been preoccupied with overhauling the chain's menu, is sending the Colonel out from his red-and-white-striped home. If you can't get away for a fix of Hot Wings, a home-delivery system being tested in 65 KFC outlets lets you soothe your craving without leaving your Barcalounger.
In another assault on stay-at-home diners, Taco Bell Corp. is testing a line of taco shells, salsa, and refried beans in 1,000 supermarkets in the South and Midwest. Trend-watchers say that's a wise decision, given the changing eating habits of cocooning baby boomers. "The market for home-prepared meals is bigger than the restaurant business will ever be," says Harry Balzer, vice-president of market researcher NPD Group, based in Port Washington, N.Y.
WAGON TRAIN. But PepsiCo isn't abandoning its take-out customers. Taco Bell has put 20 supermarket outlets in places such as Phoenix and Baltimore, and in several cities, two or more PepsiCo food outlets sell side by side in supermarkets. Those in-store counters raise a potential conflict: PepsiCo is competing with supermarket delis, whose profitable sales of take-home food grew 12% last year. And PepsiCo needs the goodwill of the supermarkets to get the best display for its beverages. But Kroger Co. spokesman Paul A. Bernish says that the extra traffic lured in by PepsiCo's foods, plus the cut supermarkets will get from fast-food sales, will offset any cannibalization.
Despite its push into supermarkets, PepsiCo knows a lot of fast-food lovers are still out on the road. So, two years ago, Taco Bell acquired Hot 'n Now, a hamburger chain based in Kalamazoo, Mich., that operated double drive-throughs. Now, all three PepsiCo chains are testing double drive-through units that can speedily serve two cars at once.
Not content to wait for customers to drive in, PepsiCo is rolling after them. In early 1992, the company bought an equity stake in Carts of Colorado Inc., a Denver-based leader in designing food carts. Taco Bell has already used tortilla-laden carts to invade Mexico by rolling them into KFCs south of the border, so chicken addicts can try Americanized Mexican. Taco Bell has also brought its movable feast to stadiums and county fairs, while Pizza Hut will send wagons on experimental trips in mid-June.
PepsiCo's strategy is not risk-free. Extending Taco Bell's reach has already put the chain in conflict with some of its franchisees, who complain that new company-owned outlets and wagons, as well as the Hot 'n Now acquisition, are eating into their territories. A worse problem could develop if, in its rush to expand, PepsiCo were to lose control of quality.
SIMPLER PICKINGS. Just in case PepsiCo's fast-food blitz meets serious resistance, the company is also looking upscale. On May 18, Taco Bell announced that it was buying Chevys, a Mexican casual-dining chain, following PepsiCo's purchase last year of a majority stake in the trendy California Pizza Kitchen Inc. chain (box).
Such additions, of course, also give PepsiCo new places to peddle its beverages. The company decided long ago that to win the cola wars, you make the battlefield bigger. Now, to win the fast-food wars, it's doing the same thing.