Frito-Lay franchise flexes muscle
Oct. 17, 2013
by Eric Schroeder
PURCHASE, N.Y. — The Frito-Lay business of PepsiCo, Inc. continued its string of positive year-over-year results, boasting a 7% gain in operating profit and a 5% increase in revenues in the third quarter ended Sept. 7.
In comments during PepsiCo’s third-quarter earnings call on Oct. 16, Indra Nooyi, chairman and chief executive officer for PepsiCo, elaborated on what she sees as “a terrific franchise.”
“The business is well run, and I think the incredible way that our snacks business and beverage business works together to really bring solutions to customers is what makes that business so successful,” Ms. Nooyi said when describing Frito-Lay’s success. “And the virtuous circle of driving top-line growth, focusing on productivity, taking the benefits, investing some back into the company to keep virtuous circle, bringing the rest to the bottom line, is what’s kept this Frito-Lay business going.”
Ms. Nooyi said Frito-Lay in recent years has been known for looking at breakthrough productivity to drive another three to five years of profit growth, but perhaps the biggest key to the franchise’s growth is the fact the Frito-Lay business has been segmented in an interesting way, where the company looks at demand spaces rather than just cohorts or day parts.
“Looking at demand spaces now, we can see how we can expand the Frito-Lay eating occasions,” she said. “So as you look at the overall macro snack environment, we know how to push salty snacks into taking away cookie occasions, cracker occasions, chocolate occasions, by looking at various demand spaces, and looking to see what consumers consume for each of those demand spaces. So we look at macro snacks as our feeding ground, salty snacks as just a sub-segment of that, and as long as there’s a lot of space with all macro snacks, and we have a very strong distribution and great innovation capabilities, we feel good about the fact that we can grow up to some of those occasions, and that’s the growth story of Frito-Lay.”
Operating profit at Frito-Lay North America totaled $977 million in the third quarter ended Sept. 7, up 7% from $917 million in the same period a year ago. Net revenues were $3,424 million, up 5% from $3,269 million.
Ms. Nooyi said F.L.N.A. generated 3% volume growth and mid-single digit organic revenue growth, with 2 points of net price realization. Performance was “very balanced” across the portfolio, she said, with volume and revenue performance positive across each major U.S. channel.
“We gained value, volume and unit share in salty snacks in the quarter and year-to-date,” Ms. Nooyi noted. “We expanded core operating margins by about 25 basis points in the quarter, and 35 basis points year-to-date, even as we increased advertising and marketing expense.”