Online
|
|||||||
 | |||||||
| Price + |
| Intraday Chart |
| Financials |
| News |
| Messages |
| Reports |
| Block Deals |
| Corporate Announcements |
| MF Holdings |
| Compare with Peer |
(Interview Transcript)
Watch Video| ads by google |
Pepsico Chief Indra Nooyi spoke at length on the effect of the US subprime mortgage crisis and a possible recession on the beverage giant, in an exclusive interview with CNBC-TV18’s Features Editor Anuradha Sengupta.
Indra Nooyi, Chairperson & CEO, Pepsico, “What we have done is gone back and looked at the last 4-5 economic slowdowns and seen how consumers behaved to the slowdowns. And by and large, the good news is that when the economy slows they still eat and drink our products because its comfort foods. So we are not going to be impacted too much by the recession. We're looking at cost saving ideas, looking to see how we can tighten screws everywhere because you may never know when you're going to have a slowdown in your business.”
Excerpts from the exclusive interview with Indra Nooyi:
Q: You were supposed to be on holiday, how did the guys here get you working?
A: Coming to India is a holiday and not a holiday because it is so far away and when you come here so infrequently; you cannot avoid doing little bit of business.
Q: It’s a year and three months since you took over as CEO. When you look back at this timeframe, what would you say the highlights have been especially given the fact that performance with purpose is the message that you have been amplifying at every opportunity that you have got?
A: It’s been an incredible. First of all, the core performance of the company, which is the basic yardstick on which you are judged was exceedingly well; Year to date, our EPS is up 14% based on strong topline growth. So a legacy of great performance continues and I am happy that our team has once again stepped up to the plate and delivered great performance. But that’s almost stable stakes.
The thing that makes me feel incredibly proud of the people in Pepsico is how we delivered purpose. I articulated this notion of performance of purpose in September of last year of 2006 when I was announced as CEO and I articulated the three planks of human sustainability, environment sustainability and talent sustainability. In a very short time, the teams brought shake to each of these planks and they went off to implement it.
Q: I have heard you say somewhere that one of your predecessors Roger Enrico had this message that he gave people that everyone is responsible for quality and you have to communicate that message and you have to give it an emotional twist. What would you say is the emotional twist that you manage to imbue in performance with purpose?
A: It is simple. I talk about the legacy, I would like to live once I finish my term in PepsiCo and the legacy is simple. I want people look at PepsiCo and say PepsiCo is the good company. I want people to look at PepsiCo and say she runs a good company and good because we deliver financial performance, if you don’t people forget you quickly. We are leaving behind a very positive imprint on society and I think that’s the emotion. Every time I talk about PepsiCo as the good company, it just tugs people’s heartstrings and they realize that we as a company can do better by doing better for society.
Q: In November you restructured the organization. You now have three units PepsiCo Americas Food, PepsiCo Americas Beverages and PepsiCo International. How different is it from what you had before and why was it important to do this. I have read that Americas Food now involves North and South America and all the food brands that you have Quaker Oats, Frito-Lays everything under that one unit and likewise with beverages is concerned and PepsiCo International is pretty much doing what it use to do?
A: I first waited for the year to finish in PepsiCo so I got a good hang of everything that was going on and what changes one needs to make because you don’t make changes too fast if you want to get a sense for what’s going on. Then I sat back and thought about leadership development and how you move the company forward. We were approaching USD 40 billion and we had one sector that was USD 23 billion and the other sector to USD 17 billion. These were too huge sectors by themselves there was not a problem but as you look at people below them for e.g. the USD 23 billion sector, the biggest division under that was USD 10 billion. To develop leaders to run a USD 23 billion sectors, the climb from 10 to 23 is huge. So I realize that I needed to flatten this structure a bit.
Second, if you spread the organization into three groups now, you can create three areas where you can bring leaders in and bring the whole organization up with that. So I wanted to develop more leaders, that’s another reason I reorganized. International was growing extremely rapidly, wonderful ideas. North America was also doing an excellent job but the two of them had no reason to bring all of the ideas together and seamlessly transfer ideas back and forth.
By organizing into the Americas and the rest of international, we have created an environment where each of our leaders has under his responsibility a developed market and a developing market. They have to work with each other because developing market ideas have to come from the whole world. So all of a sudden the company has been opened up and ways is that is just spectacular.
Q: There is people thing more than a cost thing and synergy?
A: It’s not a cost thing; it was really two things - it’s a people thing and second is to let ideas flow seamlessly between international and North America.
Q: Would you say this is a strategic change?
A: It’s a very strategic change.
Q: A course correction?
A: It is not a course correction; it’s a strategic evolution.
Q: PepsiCo International remains more or less the way it is but earlier on in the year we know that India and China have got separated into Asia Pacific and India becomes part of SAMEA (South Asia, Middle East and Africa) Region?
A: When you have India and China as big markets one of the things we wanted was focus on India, china and we never wanted a situation where you run the Asia Pacific portfolio and you might have to trade off India for China or China for India.
Q: Was that what was happening?
A: No, it wasn’t happening but when the growth picks up we were afraid that it might but we didn’t want that to happen in the future. So it was critical that India and China were both looked after very carefully.
Second, our Middle-East Asia organization had also a lot of. So they would have loved the Indian products to come there. So as they looked at India’s products they say, ‘I could have some of these products in my region’
Q: You are saying taste wise, palate wise they more in-sync with each other?
A: Exactly right and so from R&O perspective, more ideas would flow and the Middle East, Africa region have excellent positions, great market shares and the idea is to bring that expertise to India. So we can build India into being a powerhouse for PepsiCo.
Q: The wellness plank seems to be the way forward way back in 1998 when you were personally participating in that acquisition of Tropicana. Did you imagine that non-CSD (non-carbonated soft drinks) would grow this fast and become so important to the portfolio?
A: That’s the reason we made the Tropicana acquisition. Before 10 am in the morning people were not looking at PepsiCo products because all our products were consumed post 10 am. So half the day was over before you reach for a PepsiCo product. So the breakfast day part was very important, a breakfast day part is a nutrition day part, it’s not a treat day part. So we wanted to be on a nutrition segment than.
The reason we bought Quaker Oats was not just for gateway. We bought it for the Quaker trademark. So when we did that acquisition in 2000 it’s to get the Quaker trademark. So the move towards health and wellness started way back in 1996-97. But the one thing I want to say, our portfolio, a human sustainability plank is about balance; it’s a balance between treat; better for you and fun for you. It’s not swinging the pendulum on way or the other its creating balance.
Q: Everyone knows about the iconic status of the brand Pepsi. The direction in which the portfolio seems to be going, the revenues that you get maybe from food, the fact that non-CSD drinks are becoming more important, do you think there could be a time when you might need to think of another product brand, which would represent the company or am I being blasphemous here?
A: You mean change the name of the company.
Q: I am just wondering- yes?
A: The brand name PepsiCo has got enormous brand appeal. The thing to remember is PepsiCo is the name on the door. PepsiCo is a corporate entity and from everything that we have looked at PepsiCo the company is well known and well respected and to those people who need to worry about a corporate identity like our investors, they know what the portfolio is and so we don’t see any need to change the company. It’s a tremendous legacy, we all feel great about the company there is no need to change the name.
Q: You have said that organic growth is the first strategy and acquisitions were second if you were to priorities the approach. In developed markets, with reference to some figures of last year, volumes for Frito Lay grew by 1%, Quaker Foods 1%, Beverages North America by 4%, so really what are the challenges to grow in that market?
A: You shouldn’t be fooled by volume growth of 1% because it is pound growth of 1%. When you shift to baked and much lighter products, you have to look at it in terms of unit growth not pound growth. For example, we have a product called Quaker Quicks or Snacker Jacks. It is very light rice cake, like a puffed rice cake. It weighs nothing and a pound of that would be 100 bags. In one bag, there is probably 8-10 of these Quicks which is a unit. So, even though pound growth was 1% for all of Frito Lays, the growth of these units was spectacular.
When you shift the product line to baked, Quicks etc, we should move away from pound growth matrix to a unit growth matrix. But we don’t want to go back and forth, so we leave this pound growth there.
Q: Where is growth coming from ‑ innovations?
A: Growth is coming from innovations, new platforms, baked products, and healthy light products. It is coming from new flavours of existing products and non-carbonated beverages, so the growth is coming from every place. Even in developed markets, we have registered impressive growth rates. The reason is because the way we look at categories is that categories are not mature, leaders are mature. If you want to grow it, act like a growth leader. Most of the people in PepsiCo think growth as if it were oxygen.
Q: You lead a cash rich company and one of things they are famous for is acquisitions. Working there, aren’t you itching to do one, a big bang screaming one?
A: A big bang acquisition is the most difficult thing to do. The time it consumes of the organization; first to do the deal itself, then to get it through the regulators and actually do the post merger integration, just takes everything away from you. One has to do all that while running the base company well.
For a company to make a big acquisition, one has to be very thoughtful. It has got to make compelling financial and strategic sense for the organization to say I will go thorough the hell that we have to for 6-9 months to integrate this.
To be honest we have not found a big company out there, which is valued appropriately so that we can extract the value from it. If we can get synergies, which we think we can do better than what it can do on its own. That is why we rather do tuck-in acquisitions and we have been doing a very good job with that.
Q: I have heard that you said once that even if a company like Pepsi is not recession proof, it is not recession prone. We are hearing everyday about the impact of the sub-prime mortgage crisis. Given that we are seeing the unraveling of the financial markets, what impacts do you see it having on the economy?
A: There are bulls and bears. The bulls would say we might see a small slowdown but the US economy is very resilient. If you see the recent GDP estimates for 2008, people think the growth rate will be 2.5-2.6-2.7% in that range and life goes on. Then there are the bears that say, “Hey you could see a substantial slowdown in the US economy next year, in the low 1%.” It depends on whom you talk to ‑ bulls or bears. All that we have to do as responsible stewards of a convenience food and beverages company is to make sure that whether it is a slowdown ‑ deep or shallow ‑ or there is no slowdown at all, we have to make sure we deliver our financial algorithm. We have gone back and looked at the last 4 or 5 economic slowdowns and seen how the consumer behaved in the slowdown. The good news is when the economy slows down, they still eat and drink our products because they are comfort foods. When the economy is good they still eat and drink our products because they feel good. So, we are not particularly going to be impacted too much by the recession.
Q: But it is not yet time to start looking at costs?
A: We do that all the time. We do not wait for a recession. There is a Scottish statement which says, ‘ Make every penny a prisoner’. That is etched in all our minds. We tell people constantly that one of our challenges is to make every penny a prisoner.
So, we are constantly looking for cost saving ideas. We are looking to see how to tighten the screws everywhere, because you will never know when you are going to have a slowdown in your business. So, our point is let us not put the cost in to strip it out. Let us make sure we constantly review the cost structure and remain efficient. Our people are just phenomenal at doing that.
Q: Agri-commodity prices are expected to rise. How do you see that impacting the business?
A: Grain inflation is probably the worst it has ever been. Wheat, oats and corn pricing is through the roof. This whole ethanol program has not helped crop prices either because crops are being diverted then. So, it is going to be a couple of years before things come into equilibrium. Trust me, food inflation is at the highest its ever been.
Q: Do you see that impacting consumption patterns?
A: The consumer is going to have to think about the overall food basket, because overall food and beverage inflation is running between 5-7%. So, the consumer is going to have to think about what are they going to buy i.e. deep value versus what are they going to buy at a reasonable price, so they can balance out the food and beverage basket. You might see some changes next year in their baskets.
Q: Anything that you can highlight for us now?
A: One of the things we are seeing is that people are buying on value. So, when there is something on promotion, they go buy a lot of it so that they can get a good value on it or they shop the value channels or for a private label. We are seeing some shifts.
Q: Last December, when you visited India last, you said that India was a growth market in which there weren’t superior profits that Pepsi was remaining invested for the long-term, PepsiCo was spending USD 500 million and that you were open to tuck-in-acquisitions. Has anything changed since then?
A: Nothing has changed, all of that still holds and India remains one of the most attractive growth markets. In fact, its not just a growth market, it’s also a talent source.
Q: Given the plethora of brands that PepsiCo has, we are getting a sense that we are not seeing enough in India. Would you agree with that perception?
A: Each one has to come, you do not want to bring something in and kill it quickly. You have got to bring it in, build the distribution and get it across the country.
You are in Mumbai where all of our new products go in first. But after Mumbai to the rest of the country, there is a huge amount of work to do still, to get into every nook and corner of the country.
So, until you get full distribution, you don’t want to bring in the next round of new products, because they are all new technology and new platforms.
Q: There is no hesitation strategically about rolling them out fast and furious?
A: No, I have just tasted the whole bunch of new products that are going to be launched and they are wonderful products. The innovation pipeline is the best that it has ever been.
Q: There is a sense in the industry that cola companies have not managed to recover from the pesticide incident?
A:I think the cola category is back and the growth rates have returned to the cola category. But there is no question that the controversy impacted the category and its unfortunate that it happened, because I believe that the carbonated soft drink colas are the safest products in the world. So, its unfortunate that it happened. But overall carbonated soft drinks is still growing whether is colas, lemon-lime or orange.
Q: Are you saying its well behind the Cola companies or PepsiCo?
A: Its well behind PepsiCo.
Continued on Pg 2...
 |
|  |
| Related links: | |
 |
 |
 |
- Jul 08, 17:31
- Last Price
- Change
- Volume
- BSE
- 13349.65
-176.34 -1.30%- N.A.
- NSE
- 4114.25
125.70 3.15%- N.A.
|
||||||||||||||||||||||||||||||||||||
| Related links |