PepsiCo May Sell Its Sit-Down Restaurants

PepsiCo Inc. said Thursday that it might sell its casual-dining restaurants--including the Chevy’s Mexican chain and the popular California Pizza Kitchen--as part of a broader effort to bolster earnings.

The company also said it plans to concentrate on its core fast-food operations and has ordered its Taco Bell, KFC and Pizza Hut units to speed up the sale of outlets to franchisees in order to improve cash flow.

The refocusing is part of a corporate-wide cost-cutting push by the Purchase, N.Y.-based soft drink, restaurant and snack food giant that includes a $525-million charge to cover a restructuring of its troubled international bottling operations.

“Now is the time to reevaluate all other businesses in our portfolio as well as to streamline our operations,” PepsiCo Chief Executive Roger Enrico said. “PepsiCo is recommitting to a long-term mid-teens compound growth rate for earnings per share. Clearly, we have lately fallen short of that goal.”

PepsiCo, one of the nation’s largest fast-food restaurant operators, had tried in recent years to bolster its presence in the sit-down restaurant segment. It acquired all or part of the Chevy’s, California Pizza Kitchen and East Side Mario’s chains, and it had been trying to expand the chains out of their respective strongholds.

With Thursday’s announcement, it “is signaling that it’s heading back to the basics again,” said Janet Lowder, a restaurant industry consultant based in Rancho Palos Verdes. “The strategies are much tougher to execute when it comes to casual, sit-down dining compared to quick-service restaurants, and the capital investments are higher.”

Shifting company-owned stores to franchisees could generate “about $800 million per year in cash for quite some time,” Enrico said.

“Having more restaurants run by franchises benefits us both operationally and financially,” Enrico said. “Our re-franchising effort . . . was a major contributor to the $600-million cash flow turnaround in our restaurant business in 1995.”

PepsiCo also reiterated its plan to sell the Hot ‘n Now burger chain that Taco Bell, its Irvine-based subsidiary, acquired during the 1980s. The struggling chain has been a drain on Taco Bell’s operating income in recent years, according to PepsiCo.

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The $525-million charge announced by PepsiCo is designed to help right the company’s struggling international operations, which have been dogged by problems in South America.

PepsiCo recently lost a key Venezuelan bottler to archrival Coca-Cola Co. and reported that its bottler in Argentina and Brazil saw a $251-million loss in the latest quarter and is struggling to refinance about $650 million in debt.

“Clearly we’ve had problems in our international beverage business,” Enrico said.

PepsiCo said it will also try to accelerate growth in its Frito-Lay snack food business, which is reporting record market share worldwide. But Enrico noted that Frito-Lay’s profitability, “while good, will be less than we’d like.”