PEPSI'S EATERIES GO IT ALONE TRICON: LOUSY NAME, EXCELLENT MANAGEMENT
(FORTUNE Magazine) – There are three reasons to suspect that running PepsiCo's restaurant empire--due to be spun off as a stand-alone company this fall--is one of the most daunting jobs in corporate America. The first is that Pepsi floundered so badly as an owner of eateries these past few years that CEO Roger Enrico decided to call it quits. The second is that this isn't a very good time for the restaurant industry: Fast-food competition in the U.S. is so intense these days that even McDonald's can't figure out how to get more customers in front of the cash registers. Finally, the spinoff--comprising KFC, Pizza Hut, and Taco Bell--is a sprawling and unwieldy operation, with revenues of $10 billion, more stores than McDonald's, and almost 20 million customer contacts each day. So you've got to wonder: Will the new, independent Pepsi restaurant company have any sizzle?
Knowing David Novak, it will. Novak is the kinetic, charismatic manager handpicked by Enrico to be president of the spinoff company, which will be known by the infelicitous name of Tricon. ("We have three icons, get it?" Novak says.) He seems to be the ideal man for the job because he recently turned around KFC, defying almost everyone's expectations. Kentucky Fried's profits rose 22% to nearly $200 million last year, and per-store sales have increased for ten consecutive quarters. Novak did it by enlarging the menu to include things like pot pie and marinated chicken, and by dramatically lifting the morale of the people who matter most in a service business--the in-store employees and franchisees who interact with customers.
A marketer trained at Pizza Hut and Pepsi-Cola, Novak, 44, spends at least three days a week visiting restaurants, sometimes sleeping in the homes of franchisees. "They have bedrooms too," he says. "You can learn so much more from franchisees on their home turf." The first thing you notice in his office is some 160 framed photographs of him handing out prizes to outstanding KFC store managers. "We're shooting for a Wal-Mart kind of field focus and a Mary Kay-style recognition culture," he says.
To meet the new challenge of reviving Tricon's other two icons--Taco Bell and Pizza Hut--Novak is getting help from a sort of human icon from PepsiCo history: Andrall Pearson, who was president of the company for 13 years until 1984. Since Novak has almost 30,000 restaurants to oversee and since he lacks experience schmoozing Wall Street, Enrico asked Pearson, 72, to become Tricon's interim CEO; Novak should take his place in a couple of years.
"I'll be trying to keep us from making mistakes, at least national mistakes," says Pearson, who originally steered PepsiCo into restaurants by acquiring Pizza Hut in 1977. One of FORTUNE's "Ten Toughest Bosses" in 1980, Pearson today seems as iron-willed and irreverent as ever--but he insists he's a bit "more sensitive about people." To make Tricon the world's premier restaurant company (as of now, McDonald's reputation is superior, the Tricon guys admit), Pearson says he and Novak have to spread the gung-ho KFC culture companywide. The rest of Pearson's prescription is pretty simple. Pizza Hut needs to sell better food. (We agree.) Also, Pizza Hut's international expansion has been haphazard; Pearson, who will focus his attention on restaurants outside the U.S., intends to target virgin territories, such as Asia, and highly developed ones like Canada, where Pizza Hut already earns decent profits.
As for Taco Bell, while it's in better financial shape than Pizza Hut, it needs to become something more than a cheap Mexican alternative to McDonald's. The strategy is to reposition the chain as a vendor of hip, contemporary, portable food, based on the notion that that you can put almost anything inside a taco shell.
Which means you can bet on two things: Tempura tacos in Tokyo. And ever fiercer fighting in the fast-food wars. --Patricia Sellers