PARCHED FOR GROWTH

By Bill Saporito

Pepsico CEO Roger Enrico is seeing an awful lot of red in his first few months as captain of the blue team. Throughout July the renowned cola warrior got to witness the marketing frenzy associated with the Games in Atlanta, a.k.a. the Coke Olympics. Coke is riding Olympic glory to an 8% increase in sales so far this year, twice as fast as its great rival.

Then came August, when Enrico learned that Pepsi's biggest bottler, Argentina's B.A.E.S.A., was rotten with financial problems--this coming on the heels of accounting shenanigans with Pepsi Bottling of Puerto Rico. And last week Pepsi's sad summer seemed to reach its nadir in Venezuela, the company's showcase South American market: overnight and without notice, Pepsi's independent (to say the least) bottler switched 18 plants and 2,500 trucks to archrival Coca-Cola, a midnight move that will cost Pepsi some $400 million in sales and $10 million in profits according to analysts if the defection cannot be reversed by Venezuela's regulators.

Now comes news from Europe, and it's even worse. Russia's gone red. Again. Coca-Cola CEO Roberto Goizueta told TIME that Coke has overtaken Pepsi in Russia, a market of huge size (150 million people) and scope, erasing the 10-year head start Pepsi enjoyed as the Official Party Cola. Coke opens its 12th plant there this week, staffed by locals trained in Coke's bottling university in Moscow. It's all part of Coke's relentless push across the continents. "The conclusion is obvious," says Goizueta with his typical detachment. "Our system has terrific momentum."

And Pepsico's namesake business has suddenly gone flat. A couple of years ago, Pepsi's internationalists trotted out an ambitious plan to close the cola gap. Pepsi was then being outsold outside the U.S. by 3 to 1, and the idea was to blast the Atlantans from the shelves and fountains using a combination of new products such as sugar-free Pepsi Max, new bottling alliances, and new advertising combined with an old arrogance that Pepsi's marketers have always had in two-liter sizes. None more so than Christopher Sinclair, who led Pepsi's international soft-drinks business. He told Fortune in 1994, "If Coke starts growing 8%, we'll do 10% or 12%." He predicted non-U.S. sales of $5 billion by 1995.

Pepsi put some money where Sinclair's mouth was too investing $3 billion in the past three years in international bottlers. In April, Sinclair launched another salvo, a $500 million marketing campaign, called Pepsi Blue, to introduce a new, sky-hued can in 24 countries and to reinforce Pepsi's image as the coolest cola in the cosmos.

The score? Coke has increased its lead and helped itself to shares of some of Pepsi's prime territories. Internationally Coke's market share increased to 49.2% last year while Pepsi's was flat at 15.7%. In South America, Coke was expanding its 55% market share even before the Caracas Caper. In India, a market Pepsi has owned for decades, Coke bought the leading soft-drinks maker in 1994 and is now top dog. Coke sold $12.7 billion worth of products outside the U.S. last year. Pepsi's non-U.S. sales last year totaled $3.2 billion. And Sinclair? He has disappeared from Pepsi.

And so--gulp!--has Venezuela. For the past 50 years, Pepsi had been the choice of generations of Venezuelans, holding a 40% market share; the country of 21 million was one of Pepsi's Top 10 global markets. The relationship was cushioned by the friendship between PepsiCo boss Enrico and Oswaldo Cisneros, CEO of Embotelladras Hit de Venezuela, the Pepsi bottler there. But Cisneros became a Coke convert for a reported price of $300 million, a whopping chunk of cash for half interest in the business. The swiftness of the deal left Pepsi's regional president, Alberto Uribe, sputtering with rage: "Oswaldo Cisneros was my friend. He sent me four lawyers and a judge to tell me this was over." Cisneros cited Pepsi's lack of commitment to the business and his own bad health as reasons for the switch. "I gave those men five years to take a decision. Five years!" he says. Pepsi called Cisneros' reasoning "laughable," noting that the company had been negotiating a deal with him for two years.

Pepsi and Coke have sold their products overseas for decades; or rather, they have sold concentrate to an unruly menagerie of bottlers in nearly 200 countries. In the past decade the two have spent billions to gain more control over the trademarks by letting licenses lapse, setting up partnerships or muscling undesirable bottlers out of the way. Pepsi, for instance, now has a 40% interest in its bottlers. Earlier this summer Coke arranged to buy out its British partner, Cadbury Schweppes; the two were the beverage version of Charles and Di. Coke's new partner is Coca-Cola Enterprises, the world's biggest bottler--44% owned by Coke. In this same manner Coke has reclaimed operations in the Benelux countries and France and set up "anchor bottlers" such as Coca-Cola Amatil in Vienna, which handles Central Europe. Pepsi General Bottlers of Chicago supply Poland as well as Pennsylvania.

Pepsi is also lagging in the critical category of profit. Coke pockets 30' for every dollar's worth of product it sells outside the U.S. Pepsi earns less than 7', a figure it hasn't been able to improve. This difference is enormous when you consider the sums of money these two companies have been investing across the planet. Coke for instance, is doubling its investment in Russia to $500 million next year. In China it has plunked down another $500 million. This year the company will invest some $1.5 billion worldwide. "You cannot jump-start things in this business. You have to build that infrastructure one step at time," says Goizueta.

Remarkably, PepsiCo ably demonstrates how much gold there is in being the eternal silver-medal winner. The company is still a veritable junk-food juggernaut that includes Frito-Lay, which dominates the salty-snack industry the way you-know-who does soft drinks. There are also the fast-food restaurants Taco Bell, Pizza Hut and KFC, a division that is on the rebound. The entire company brought in revenues of $30 billion and profits of $1.99 billion in 1995. The stock, which recently split, increased some 70% last year.

The folks in Atlanta are trying to keep their recent successes in perspective. Says Goizueta: "There's a feeling of euphoria in certain groups. It's not the time to become euphoric. All we have done is to raise the bar." Goizueta also knows that PepsiCo CEO Enrico is famous for parachuting into the company's troubled businesses and turning them around in short order. Earlier this decade he made Frito-Lay a killer. And last year he created a new recipe for the struggling restaurant chains. He is best known, however, for revitalizing Pepsi's soft-drink business in the 1980s. It could be time for an encore.

--With reporting by Barry Hillenbrand/London, Jane Knight/Caracas and Stacy Perman/New York

With reporting by BARRY HILLENBRAND/LONDON, JANE KNIGHT/CARACAS AND STACY PERMAN/NEW YORK