Why Pepsi Went Bankrupt

The History of Pepsi 00:00

• Pepsi started off as a ripoff of Coca-Cola.
• They tried to sell their company to Coca-Cola on three separate occasions but were turned down.
• As a result, Pepsi struggled and literally went bankrupt twice.
• However, fast forward to present day and PepsiCo makes around 80 billion dollars of revenue a year.
• Pepsi is no longer just a drinks business but is a gigantic Empire that owns more food and beverage products than you can even imagine.

Caleb Bradham 01:14

• Caleb Bradham is the creator of Pepsi Cola.
• He was born in 1867 in a small farming town in North Carolina.
• His father worked as a local merchant, and although they were wealthy, they ran into financial trouble.
• Caleb had to drop out of school as a result and went on to become a pharmacist instead.

The Creation of Pepsi Cola 02:47

• Drugstores with soda fountains were incredibly popular in the late 1800s.
• Caleb Bradham saw the huge potential of Coca-Cola and made his own very similar version of cola syrup but left out the ingredients he considered harmful.
• Caleb's cola syrup was a mix of natural flavors like caramel, rare oils, and fruit juice extract.
• He started to offer it as a new flavor at the soda counter in his pharmacy and encouraged his friends to try it.
• The locals nicknamed his cola beverage "Brad's drink" in reference to the surname of its creator Caleb Bradham.

The Birth of Pepsi Cola Company 04:31

• In 1903, Caleb officially established the Pepsi Cola Company.
• In the first year as a registered company, they sold over 8,000 gallons of syrup and Caleb reinvested his earnings into advertising in local newspapers, which helped the brand grow even more.
• By 1915, Pepsi Cola's assets were worth more than one million dollars.

Caleb's Misstep 05:28

• During World War One, the price of sugar skyrocketed due to strict rations.
• Caleb assumed that the price would continue to rise and he decided to pour huge amounts of money into stockpiling more sugar.
• If his theory was right, all the sugar he'd bought would soon be extremely valuable, and he'd also be able to produce his drink much cheaper than any competitors who would be paying way higher prices for their sugar.
• Unfortunately, his theory was wrong, and the price of sugar soon dropped, leaving him with huge amounts of sugar he couldn't sell.

Sugar prices crash 06:04

• In just six months after Caleb's theory, the sugar price crashed down to three cents per pound, making it cheaper than before the war started.
• Most factories in America had to prioritize making products for the war effort, which led to the reduction of bottling factories from 250 to just two.
• The amount of Pepsi products that could be sold was drastically cut down, and the company spent more on sugar than it could earn.

Pepsi files for bankruptcy 06:33

• In 1920, Pepsi-Cola filed for bankruptcy due to the spiraling out of control financial situation.
• Caleb was 53 at that point and had to sell off all the remaining company assets, including the Pepsi trademark and drink formula.
• By 1934, Caleb was dead, and the original creator of Pepsi never got to see the insane success his company would soon go on to have.

Pepsi goes bankrupt again 07:05

• After acquiring what was left of the Pepsi company for eight straight years, the new owners desperately tried to increase the value of the business.
• However, when the stock market crashed in 1929, the economic situation was looking very bleak for Pepsi.
• At this point, Pepsi had just one bottling plant in Richmond, Virginia, and they were failing to make a profit.
• Pepsi declared bankruptcy a second time and was forced to sell the Loft candy company in 1931.

Pepsi passes on to a third owner 07:32

• Pepsi had now gone bankrupt twice with two different owners and had now been passed on to a third different owner.
• Coca-Cola was Pepsi's biggest competitor, and things were looking much brighter for them.
• While Pepsi had been struggling through World War One and the Great Depression, Coke had managed to secure a wartime contract with the United States government, expanding all over the world.

Three attempts to sell Pepsi to Coca-Cola 08:02

• Throughout the 1920s and 30s, there were three separate attempts to sell Pepsi to Coca-Cola, but they refused every time.
• In retrospect, imagine how much money Coke could have saved themselves if they bought out their future biggest rivals when they had the chance.
• But at the time, understandably, no one believed that Pepsi could turn their luck around.

Pepsi's clever plans 10:14

• In 1939, World War II began, and after what happened with the sugar rationing in World War One, another war would spell disaster for Pepsi.
• But this time around, Pepsi came up with a clever plan to stay in business.
• Pepsi decided to change the colors of their brand to red, white, and blue to show their patriotism.
• They also set up a campaign called "Your man in service," where Pepsi installed recording booths all around the United States, so that soldiers could record a message to their family for free.
• Pepsi also made a very successful decision to market their drink to the African-American community and hired an all-black sales marketing team to create the ads.

Pepsi's growth under Alfred Steele 12:10

• Alfred Steele became CEO in 1957 and gave more autonomy to employees, allowing them to bring new ideas forward.
• These changes helped increase Pepsi's sales from 1.6 million in 1950 to 11.5 million dollars in 1958.

Don Kendall becomes CEO and brings Pepsi to the Soviet Union 12:36

• Don Kendall, who had been with Pepsi for his entire career, became the new CEO after Steele's death in 1959.
• Kendall saw the Soviet Union as a big opportunity for Pepsi and decided to introduce the brand there.
• Pepsi became the very first American brand to be sold in the Soviet Union because Coca-Cola had not entered the market due to the Cold War.
• The introduction was successful, and Pepsi managed to agree to use a barter system because trading in the Soviet ruble was illegal.
• Pepsi accepted Stolichnaya vodka as payments and received exclusive rights to distribute this vodka in the United States.

Pepsi's deal with the Soviet Union 13:39

• Pepsi's deal with the Soviet Union enabled the company to sell their product in the Soviet Union while bypassing the currency issue.
• In 1989, there was a long-standing story that the Soviet government paid Pepsi by giving them a fleet of decommissioned warships.
• The actual truth seems to be that even though Pepsi considered this warship deal, they didn't go through with it.
• Instead, they drew up a new agreement for the Soviet Union to build Pepsi commercial freight ships.

Pepsi in Russia 15:50

• Pepsi remained a huge presence in Eastern Europe, and in fact, Russia was one of the few countries where Pepsi outsold Coca-Cola.
• Pepsi expanded its presence in Russia over the years, like in 2008 when PepsiCo bought the majority of shares in Russia's largest juice manufacturer.
• PepsiCo also acquired another huge Russian brand, Wimm-Bill-Dann Foods, which made PepsiCo the largest food and beverage manufacturer in Russia.
• However, in 2022, Pepsi stopped manufacturing in Russia after Russia's invasion of Ukraine.

The AI Revolution and MooMoo 16:23

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Pepsi's expansion into snack foods 17:31

• Over the years, Pepsi became dissatisfied with simply selling beverages and wanted to expand into snack foods.
• Pepsi knew that their target customer was buying both soda and snacks at the grocery store at the same time, so they were complementary products.
• Rather than starting from scratch in a new market, Pepsi wanted to expand its presence by acquiring existing snack food brands.

Pepsi and Frito-Lay Merger 17:50

• In 1965, Pepsi merged with snack company Frito-Lay to become PepsiCo.
• This merger was successful as it allowed the two companies to expand into new markets and pull their resources to grow across the world.
• Within five years of forming PepsiCo, the brands had combined sales of over 1 billion dollars.

Formation of Conglomerates 18:43

• The merger between Pepsi and Frito-Lay illustrates how business works.
• Two successful companies merge together to form one even more powerful company that can then crush or acquire smaller competition.
• This is how conglomerates get formed.
• Nowadays, it may be shocking to know just how many brands are owned by PepsiCo, including Lays, Gatorade, Cheetos, Aquafina, Tropicana, Quaker Oats, Mountain Dew, Doritos, Cap'n Crunch, Rockstar, and many more.

PepsiCo Acquires Fast Food Chains 19:06

• PepsiCo acquired three of the top 10 restaurant chains in the United States: Pizza Hut, Taco Bell, and KFC.
• After acquiring these restaurants, PepsiCo required them to only serve Pepsi on beverages from their soda fountains.
• This strategy of acquiring fast food restaurants to drive up sales of their beverages didn't really have the desired effect and, so they spun off all their main restaurants into a separate company, technically no longer owned by PepsiCo.
• However, this didn't stop PepsiCo trying to expand into other random industries like at one point Pepsi acquired the sporting goods company Wilson.

The Number Fever Disaster 20:41

• In 1992, Pepsi ran a contest in the Philippines called Number Fever where they printed numbers on each Pepsi bottle cap ranging from zero one to 999.
• Every night they would reveal a winning number on the evening news.
• The contest became hugely popular, and around half of the people in the Philippines were participating in the contest by collecting Pepsi bottle caps.
• There was a big grand prize of 1 million pesos, equivalent to around 50,000 US dollars, which was well over 600 times the monthly salary in the Philippines at the time.
• Pepsi had control over how much money they gave away during the whole campaign and had a computer system to determine which numbers print on bottle caps as this way they could make sure that only two bottle caps were printed with the number for the grand prize of 1 million pesos that meant only a maximum of two people could win the big grand prize.
• However, suddenly extending the competition caused a glitch that would have very drastic consequences.
• They announced the winning number of 1 million peso prize number 349, but instead of just two winners like Pepsi expected, they had printed over 600,000 bottle caps with the number 349.
• When the winning number was announced, hundreds of thousands of people across the country began celebrating thinking they just won a million pesos.
• Many of these people were in dire poverty, and this was going to change everything for them.
• If they actually paid everyone with the winning bottle cap number, it would cost Pepsi over 30 billion US dollars, and it would literally bankrupt the company.
• So, they instead announced the winning number was a mistake, but as... (video continues)

Pepsi's controversial contest 23:36

• Pepsi launched a contest in the Philippines where people could win a grand prize of $50,000 if they found a bottle cap with the number 349 printed on it.
• A computer error led to 800,000 bottle caps being printed with the winning number, which meant that Pepsi had to pay out $40 billion.
• Pepsi offered $500 to anyone with a 349 bottle cap instead of paying the full amount of $50,000.
• This led to riots, injuries, and deaths in the Philippines.
• Pepsi faced a lawsuit, but they only had to pay a fine of 150,000 pesos, which was insignificant compared to the millions of dollars they made from the campaign.

Pepsi's faulty contest in 1996 25:00

• Pepsi launched a campaign in which customers could exchange points for prizes from their catalog.
• One of the prizes was a Harrier jet, which could be won with 7 million points.
• A man named John Leonard noticed that he could buy 7 million Pepsi points for $700,000 and claim the jet, which was worth $23 million at the time.
• Pepsi refused to give him the jet, claiming that the commercial was just a joke.
• Leonard sued Pepsi for false advertising, but Pepsi won the case, and they changed the commercial to include "just kidding" at the end.

Pepsi's controversial ads 25:53

• Pepsi has a history of releasing controversial ads.
• In 2013, they released a Mountain Dew ad that was criticized for being racist.
• In 2017, they released a "Live for Now" ad featuring Kendall Jenner, which was criticized for being tone-deaf and dismissive of people who have been protesting against police brutality.

The Pepsi Challenge 27:09

• In 1975, Pepsi introduced the Pepsi Challenge, an experiment where random participants did a blind taste test of Pepsi and Coca-Cola.
• More people preferred the taste of Pepsi in the blind taste test, which led to a massive ad campaign by Pepsi.
• Coca-Cola denied the results and claimed that Pepsi had a biased experiment, but after doing their own blind taste test, they got the same results.
• Coca-Cola introduced New Coke in 1985, but it backfired, and they had to revert back to Coca-Cola Classic.

Pepsi's success is overshadowed by Coca-Cola's brand loyalty and success, making Coca-Cola the winner in the battle between the two brands.