The Pepsi Challenge: Indra Nooyi, CEO, PepsiCo
Indra Nooyi is making bold, and often unpopular choices, as she attempts to save snack and beverage company PepsiCo in the face of increasingly health conscious consumers.
The Pepsi Challenge: the market turns health conscious
The fizzy drink and snack market has declined 14% over 9 years as consumers have become increasingly health conscious. In the past five years alone the top 25 food and beverage companies have lost $18 billion worth of market share.
For a company with 22 food and beverage brands, such as the not-so-health conscious Lay’s crisps, Doritos tortilla chips, Cheetos, Fritos corn chips, Pepsi, Mountain Dew, 7UP, and Tropicana, the trend is troubling. The past few years, PepsiCo has struggled to keep revenues and profits simply level.
But with two primary goals – to invent new hit products and make existing products healthier -, CEO Indra Nooyi has gone a long way in revitalising stock, and has overtaken rival Coke.
From India to the US
An American-Indian, Nooyi was born in Chennai in 1955, where, unusually for women of the time, she pursued her education, receiving a BA in Physics, Chemistry, and Maths from Madras Christian College, and an MBA from the Indian Institute of Management Calcutta (all by the age of 21).
She started her career at British textile export company Tootal, in the Bombay offices of Johnson & Johnson, and at textile company Mettur Beardsell. Then in 1978, at a time when young Indian girls did not move alone to far flung foreign countries, Nooyi moved to the US to study a Master in Public and Private Management at Yale School of Management. On graduation she joined Boston Consulting Group (directing international corporate strategy projects), and then took vice president of strategy positions at Motorola and Asea Brown Boveri.
The highest ranked Indian woman working in America
In 1994, with an offer on the table from General Electric, PepsiCo CEO Wayne Calloway lured Nooyi to his company, where she joined as vice president of corporate strategy and development.
The years following, she drove the 1997 spin-off of PepsiCo’s restaurant chain (Pizza Hut, KFC and Taco Bell), the 1998 acquisition of Tropicana for $3.3 billion, the acquisition of the drink maker SoBe for $337 million, and the acquisition of Quaker Oats for $14 billion. In reward, she was promoted to CFO in 2001, making her the first highest ranked Indian woman working in America. She topped that in 2006 when she was appointed Chairman and CEO.
The power to adapt
Over the past eight years, Nooyi has worked to take the junk-food business in a bold, health-conscious direction.
The company has removed 400,000 tons of sugar from its drinks, reduced the salt and saturated fat in crisp products, diversified into yoghurt, introduced a calorie free Propel Electrolyte Water, and built a repertoire of healthy-snacks, such as whole-grain, baked, and gluten-free crisps, oatmeal bites, rice cakes, and granola bars.
Many thought it would be the company’s downfall, but there are signs that it is finally paying off: last year PepsiCo delivered 4% organic revenue growth for the second year in a row, reporting revenues of $66.7 billion. This year, PepsiCo’s share price has risen by 14%, and its stock market value has reached $98.4 billion.
But while consumers are increasingly prioritising health, they are also inconsistent: in 2014, 36% of PepsiCo profits came from Frito-Lay North America junk-food snacks. It is a confounding situation for Nooyi, who must not let the push towards health damage the successful junk-food business.
New products to offset the decline in soft drinks
Nooyi has also committed to developing new products in the hopes of finding one to offset the major decline in soft drinks sales. Going some way in achieving that goal, products launched in the past two years now make up 9% of revenue, and in 2013, nine of the 50 bestselling new food and beverage products in the US came from PepsiCo (e.g. Muller Quaker Yogurt, Mountain Dew Kickstar).
However, much of PepsiCo’s development has been line extensions rather than new standalone products (e.g. Doritos Roulette crisps where one of five bags is super-spicy); that real winning product has not yet arrived.
Single minded, making bold, and often unpopular, choices, Nooyi has proved she can successfully adapt. But she also knows how to stand her ground, displayed as she withstood activist pressure (from investor Nelson Peltz, whose hedge fund holds a $1.2 billion stake in PepsiCo) to separate the two halves of the business. Instead, she has integrated them more closely, seeing the pairing often sold together.
In recent months, there have also been rumours that Nooyi might be interested in a political post if Hillary Clinton, one of the few women more powerful than she, goes the distance in 2016. Ambition and drive would not block that possibility: Nooyi has them in bucket loads.