May 12, 1999
A Long Time Ago
in a fast food chain
far, far away. . .
by Rick Aristotle Munarriz
Three years ago PepsiCo (NYSE: PEP) penned a multi-year deal with Lucasfilm Ltd. to secure promotional tie-ins for the Star Wars films. The deal valued at $2 billion gave PepsiCo exclusive use of Star Wars characters in its brand categories worldwide. At the time, the original trilogy was gearing up for its theatrical re-release.
As Star Wars, Return of the Jedi, and The Empire Strikes Back made a second run at padding their earlier box office success, the carbonated conglomerate was slow to cash in on its galactic investment. Unless you were at a Taco Bell, where Chewbacca and C-3PO cardboard stand-ins watched over your beef-and-bean-burrito dinner and toy premiums like Yoda and Darth Vader mirror cubes were tucked into kid meals, you would have wondered if PepsiCo had any tie-in at all. Like a young Luke Skywalker, amateurishly trying to harness this powerful Force in the original Star Wars film, PepsiCo lost its grip on the marketing possibilities.
But that was then and this is now. The much anticipated Star Wars prequel Episode 1The Phantom Menace is set to be released on May 19, 1999, and PepsiCo, along with two companies that it spun off since the record-breaking deal was signed, are gearing up to take full advantage of the new film.
Use the Forks Luke
Two years ago, PepsiCo spun off its Pizza Hut, KFC, and Taco Bell chains as Tricon Global Restaurants (NYSE: YUM). Tricon has grown into its own quite nicely, with its shares having more than doubled since the October 1997 spin-off. All three chains are teaming up for the $50 million "Defeat the Dark Side" contest. Each of the chains will have many locations decked out as The Phantom Menace set locations. KFC restaurants will be decorated as Naboo, Queen Amidala's culturally advanced planet in the Outer Rim. Pizza Huts will be the Galactic government stronghold of Coruscant. Taco Bell will be Skywalker's familiar desert planet of Tatooine. The clincher here is that to enter the contest a patron will have to visit all three planets, er, restaurants. The victorious space travelers will win prizes like a THX entertainment system, a Visa shopping spree, and even a working hovercraft.
A more realistic draw to the three chains will be the 28 different The Phantom Menace toy premiums and collectible soda-cup lids that the units will dole out in its kids meals or as add-on purchases. Even Pizza Hut, which never had a reason to promote a kids meal, began selling $0.99 K'NEX toys back in March. This will mark the first time that all three concepts line up as toy stores for the same property. Tricon has sometimes bet big and lost in this department. Godzilla toys at Taco Bell and Casper gizmos at KFC didn't exactly line up the fans at the box office or the drive-thru lanes. But, this has to be the closest one will ever get to a "can't miss" celluloid tie-in. The Star Wars franchise has spawned a huge collector's market. Of the nearly two million auctions that were taking place on eBay last week, more than 15,000 items were Star Wars-related. If you have children, or are an enterprising collector, ready yourself for a daily diet of Gorditas and Extra Crispy chicken meals.
Will Tricon reap the rewards of that substantial investment? $2 billion for PepsiCo as a whole? That's a lot of Taco Supremes folks. But, while the restaurants may not recover that king's ransom financially, it will no doubt revel in the short-term slump of its Coke-chugging rivals. Traffic at competitors like McDonald's (NYSE: MCD), Wendy's (NYSE: WEN), and Burger King -- owned by Diageo (NYSE: DEO) -- are bound to suffer as fast-food outings gravitate towards Naboo, Coruscant, and Tatooine.
In March of this year, PepsiCo spun off its Pepsi Bottling Group (NYSE: PBG) subsidiary. While Pepsi still retains a stake in almost half of its bottling operations, it was yet another move to unlock shareholder value in piecemeal fashion. While the timing may not be perfect, with both Pepsi and Coke awash in a sluggish carbonated market, neither was Tricon when it went public. That offering worked out well for Tricon and it might very well be the case this time around too. The launch of Pepsi One has relit the innovative fires that seemed to have been snuffed out with the demise of Crystal Pepsi. With its lemon-lime Slice floundering, the company is now distributing Storm and Diet Storm (powered with the same Ace-K sweetener found in Pepsi One) in test markets.
Do I smell an Isuzu Trooper giveaway to promote the new beverage with a Star Wars bent? StormTrooper anyone? No, it won't happen, but the restaurant side will be giving away Lincoln Navigators. However, you will find Anakin In-a-Can this month. His bio will grace Pepsi product cans. The sleek Queen Amidala will be on Diet Pepsi. The caffeine-intensive Mountain Dew will feature Darth Maul. In short, if you're a Star Wars buff, prepare to down a wide variety of soda if you want to complete the 24-bio collection. And, if you happen to stumble across a special golden Yoda can, congratulations. Pepsi will pay you $20 if you turn it in. Keep it, and that price a few times over is probably awaiting you from your highest bidder on eBay.
With Pepsi Bottling Group and Tricon spun-off, that makes the surviving parent company a bit of a misnomer. Frito-Lay, the juggernaut that controls 50% of the U.S. salty snack food market, now makes up two-thirds of PepsiCo's revenues. As an aside, even Coke doesn't command 50% of its U.S. soda market. Frito-Lay is just that dominant. More than just its namesake Fritos corn chips and Lay's potato snackables, the Frito Bandito is alive and well -- stealing grocer shelf space with its portfolio of dominating salty snack brands.
Will this maker of not-so-light savors work Star Wars into its bag of chips? Don't hold your breath waiting for Chewie Chee-tos or Darth Dorito's, but the company that also produces Rold Gold, Tostito's, and the Olestra-blessed Wow! chips and pretzels will incorporate a Star Wars theme in product packaging. Will there be more? Two years ago the sodium-rich giant got a sweet tooth and bought Cracker Jack from Borden Foods. Now the company is promising better prizes inside. Skywalker? Kenobi? Is that you?
The possibilities are as endless as the profit potential of the Lucas masterpieces to come. While PepsiCo may never recoup the billions it paid for this spotlight, it might eventually be seen as a bargain if the expected short-term sales surge translates into long-term converts -- this is, after all, only the first chapter.