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PepsiCo’s decision to spin off its restaurants division is likely

to lead to increased investment in its global snacks company, Frito-Lay,

according to observers.

Despite PepsiCo’s origins as a cola company, it has acknowledged that

snacks, which contributed 44% of group operating profits in 1995, are

showing the greatest potential for growth.

KFC, Pizza Hut and Taco Bell are to be sold to current PepsiCo

shareholders and will in future operate as a separate company. The

chains form the biggest fast-food group in the world, with 29,000

outlets to McDonald’s 21,000. But McDonald’s fast-food sales are nearly

triple those of PepsiCo.

With consumers demanding ever-more exotic styles of food, pizzas and

fried chicken are not as appealing to western Europeans as they were

But in the rest of the world, particularly Asia, western fast food is

gaining popularity.

The new firm, no longer subsidised by cola and snack profits, will be

under pressure to cut costs, so an early result of the ownership change

may be an alignment of the advertising agencies.

The BBDO network handles Pizza Hut worldwide, with Abbott Mead Vickers

BBDO creating the pounds 8.2m campaigns in the UK. KFC spends pounds 6m

through Ogilvy & Mather in the UK and the agency also produces ads in

the rest of the world. In the medium term, the new restaurants business

is likely to streamline this structure, with one network for both

brands.

In the UK, brewer Whitbread is rumoured to be considering a bid for the

350 British outlets. It already owns 50% of the chain.

Frito-Lay has made no secret of its plans to expand the visibility of

the Lay’s snack brand, but in the short term it wants to expand the

total consumption of snacks, which will lift sales. In Europe this will

be handled by former Walkers marketing director Martin Glenn, who will

look at introducing Doritos into new markets.

PepsiCo cash flow

                    Sales (% of total)       Profits (% of total)

Beverages           pounds 6.56bn (35%)      pounds 384.8m (37%)

Snacks              pounds 5.25bn (28%)      pounds 405.6m (39%)

Restaurants         pounds 6.93bn (37%)      pounds 249.6m (24%)

1995 worldwide      pounds 18.75bn           pounds 1.04bn