Pepsi Is Going After The Upper Crust

Think designer pizza and junk food don't mix? Think again. PepsiCo Inc. broke into the full-service restaurant business last year with the help of two left-coast entrepreneurs whose idea of a good meal is Peking Duck on a wholesome dough crust. Now they wash it down with Pepsi.

Larry Flax and Rick Rosenfield, two lawyers-turned-restaurateurs, created California Pizza Kitchen Inc. in 1985, after each had a typical midlife career crisis. Both loved to cook, and both noticed that in West Los Angeles there didn't seem to be too many choices in dining between upscale and downscale.

POPULAR RECIPE. That middle market is robust: In 1992, casual chains grew twice as fast as the U.S. fast-food industry. Flax and Rosenfield enjoyed the ride, dishing up single-serving pies such as Caribbean Shrimp Pizza for less than $10. Diners seem to like their recipe. With $60 million in sales last year, California Pizza now operates 32 restaurants.

PepsiCo liked the recipe, too. Last spring, just as CPK was about to go public, PepsiCo offered $96 million for 67% of the chain. Flax and Rosenfield got nearly $20 million apiece and kept 50% voting control. For PepsiCo, CPK is partly a growth vehicle. The chain is adding 20 new restaurants this year and expects to open more than 25 locations in 1994. But it's also a classroom: Taco Bell's President and CEO John E. Martin, along with Executive Vice-President Kenneth T. Stevens, make up the PepsiCo half of CPK's board.

They're learning fast. PepsiCo last month made its second move into full-service restaurants by buying Chevys, a $95 million Mexican-food chain with 37 outlets, mostly in Northern California. Martin thinks Chevys can reach $1 billion in sales and 300 restaurants in just five years. Pepsi will also consider alternative formats--airport stands, campus outlets, and even supermarket products--for both Chevys and California Pizza, says Martin.

What do Flax and Rosenfield think of being part of PepsiCo's food-business blitz? Because they were picked in part for their management savvy, they say they still have autonomy. But working for a big company also sometimes gets them off the hook. Says Rosenfield: "If somebody overcooks the pasta, poor Pepsi gets the blame."

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