Pepsi chief pursues snack innovation

July 18, 2013 6:08 pm

Pepsi chief pursues snack innovation

By Shannon Bond in New York

While Nelson Peltz and other investors arepushing PepsiCo to split its portfolio of snacks and drinks brands, chief executive Indra Nooyi has something else on her mind – drinkable oatmeal. The company’s Quaker unit sells an oat-based drink in Latin America, and Ms Nooyi has pointed to the product as the possible future of “drinkified” snacks. “The lines between snacks and beverages are blurring,” she told an investor conference in May. “We keep talking artificially about snacks and beverages only because some people used to track this industry differently. I think that’s over. This is convenience.”In the 18 months since PepsiCo launched its turnround plan, Ms Nooyi has held firm against pressure from investors who do not share her vision of a “continuum” of eating and drinking.

Her aggressive restructuring plan knit together food and drink marketing and boosted ad spending. She says of one of the company’s smoothie brands: “I don’t know if Naked Juice is a snack or a beverage.”

The doubling down on PepsiCo’s identity as an “integrated food and beverage company” is fitting for the Chennai-born chief executive, who has led its expansion beyond fizzy drinks.

Ms Nooyi, 57, joined PepsiCo as a corporate strategist in 1994 and rose to chief financial officer in 2001. She was involved in divesting its restaurants, now Yum Brands, in 1997, and engineered the 1998 acquisition of Tropicana and 2001 merger with Quaker Oats.

Since becoming chief executive in 2006, she has overseen the purchases of Naked Juice and Russian dairy company Wimm-Bill-Dan, as well as joint ventures to sell Sabra hummus and Muller yoghurt in the US.

But her focus on “good for you” products like juice and yoghurt drew criticism that she was ignoring PepsiCo’s biggest sodas and snacks. In February 2012, Ms Nooyi announced a “major reset”, pledging to spend $500m-$600m more on marketing and advertising “core” brands.

Since then, PepsiCo shares have risen by nearly a third and this week hit an all-time high of more than $85.

The company improved margins and posted better than expected earnings in the first quarter of 2013.

But the long-term decline of US soda consumption is still a drag – and PepsiCo acknowledges that changes are needed.

On Wednesday, a person familiar with PepsiCo’s thinking rejected the idea of a global split of snacks and beverages, saying it “just isn’t going to happen”.

But the future of the US drinks brands is unclear. Ms Nooyi told investors in April that the company is exploring “meaningful structural alternatives” for its underperforming North American beverage business.

That could mean shifting bottling back out to partners, similar to what Coca-Cola announced earlier this year, or something more dramatic. Hugh Johnston, chief financial officer, has said all options are on the table, but PepsiCo does not plan to reveal its decision until February 2014.