Strategic Recommendations for Pepsico’s Restaurants – Carts of Colorado and California Pizza Kitchen

TO: Wayne Calloway, Chairman and CEO, PepsiCo

FROM: PepsiCo Food Systems Strategic Acquisition Team – Ken Stevens SVP Strategic Planning, Steven Reinemund President Pizza Hut, John Cranor III CEO & President KFC, John Martin President Taco Bell

RE: Strategic Recommendations for PepsiCo’s Restaurants – Carts of Colorado and California Pizza Kitchen

Recommendation

As a part of PepsiCo’s overall strategy and after reviewing Carts of Colorado (CoC) and California Pizza Kitchen (CPK) for strategic fit and acquisition, we recommend acquiring California Pizza Kitchen and not acquiring Carts of Colorado.

Background

Since the 1980’s, after acquiring Frito Lay and various fast food businesses, PepsiCo became a noticeable competitor in the snack and fast food markets. The food industry made roughly $250 billion last year, with 25% of food service revenue generated by fast food restaurants, 2% by delivery and 7% by take out. PepsiCo owns restaurants in those three sectors, but currently does not have any restaurants in casual dining or the “other” category, which is 10% and 12% of the $250 billion respectively. Therefore 22% of the market is currently lost by PepsiCo, which equates to $55 billion of market for which PepsiCo is not receiving revenue. To align with our PepsiCo strategy of winning and growth, we evaluated two potential acquisitions: Carts of Colorado and California Pizza Kitchen.

Carts of Colorado (COC)

Carts of Colorado (CoC), a Denver-based designer, manufacturer, and merchandiser of mobile food carts and kiosks, generated $7 million in sales and has 100 employees at its disposal. The company sells to many fast food restaurants at various venues, and its customer base includes PepsiCo (20% of revenue), Coca-Cola, Burger King, Dunkin Donuts and Mrs. Fields. Cart costs range from $1,200 to $5,200 and make nearly as much as a restaurant. CoC, currently one of the fastest growing private companies in the US with a strong focus on differentiation and product quality, has seen volatile financial results, and even operated in the red back in 1988. Since 1989 CoC has been growing yet remains small operationally. They purchased one of their largest competitors in 1990. Additionally, CoC’s differentiated product (carts are approved by the National Sanitation Foundation) is unique to the market segment.

California Pizza Kitchen (CPK)

California Pizza Kitchen, founded in 1985, is a restaurant chain in the casual dining segment, focusing on California cuisine. The company has annual sales of $34 million and has 1700 employees in 25 locations across 8 different states. The restaurants target young, upscale