PepsiCo sees greater opportunities in D.S.D. model

by Keith Nunes
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Frito-Lay delivery truck, PepsiCo
PepsiCo affirmed its commitment to the D.S.D. system.

BOCA RATON, FLA. — Ever since the Kellogg Co. announced it is shifting its snacks distribution system away from direct-store delivery (D.S.D.) to a warehouse model, executives from other publicly traded consumer packaged goods companies have faced questions about their own D.S.D. systems. During PepsiCo’s presentation at the Consumer Analyst Group of New York conference on Feb. 23 it was no different.

Albert Carey, PepsiCo
Al Carey, c.e.o. of PepsiCo North America

“ … My belief on D.S.D. is there is nothing like it,” said Al Carey, chief executive officer of North America. “We are able to get very specific. If you ever spend a day in the field with a good route salesman for Frito-Lay or for Pepsi, you’ll see the relationships that have built at the store level that are unmatched.

“And when there is a problem with servicing a customer and, let’s say it’s in a Wal-Mart store and it’s a Friday afternoon and they’re running short on product, we will put a person out there in one second. And as a result we get a lot of jump balls at (the) store level. We build a relationship with the store manager that’s unequaled, and it allows us to get better execution at the store level as well.”

In response to a separate question from a securities analyst, Vivek Sankaran, president and chief operating officer of Frito-Lay North America, alluded to the fact that PepsiCo’s commitment to its D.S.D. system also gives it some advantages as e-commerce becomes a more significant part of the company’s business. He noted there are two attributes essential to a successful e-commerce business.

Vivek Sankaran, PepsiCo
Vivek Sankaran, president and c.o.o. of Frito-Lay North America

“One is speed of how we get things done,” he said. “We can get a product out literally in five days for the e-commerce business.”

The second attribute is the supply chain, and Mr. Sankaran said the company’s existing distribution capabilities, which include manufacturing, warehouses and D.S.D. components all over the country, give it an advantage.

“ … We think of e-commerce both with the pure plays, think of the Amazons of the world,” he said. “And then with the grocery click and collect. And in both those cases we do very well. In fact it’s equal to a higher share index in the basket…

PepsiCo Frito-Lay e-commerce
E-commerce is becoming a more significant part of PepsiCo's business.

“Some parts of our portfolio play better than others in e-commerce. It’s not a material share of the business yet, but it is an extremely fast growing part of our business and we feel very grounded in how we are doing well in it.”

But the company has some areas in e-commerce where it needs to improve, Mr. Carey said.

“ … We need to do some work on packaging to be in more of e-commerce-friendly packaging, which we’re doing right now,” he said. “We’ll get there, but we’re a little behind on that.”
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