Pepsico split? Nooyi says no way
Oct. 17, 2011
by Keith Nunes
PURCHASE, N.Y. — Announcements by Kraft Foods Inc., Sara Lee Corp. and Ralcorp Holdings, Inc., that management had initiated plans to separate the businesses in an effort to maximize shareholder value has led to speculation PepsiCo, Inc. may follow suit and split its beverage and snack businesses. But in an Oct. 12 conference call with financial analysts to discuss the company’s third-quarter earnings, Indra Nooyi, chairman and chief executive officer, took some time to explain why PepsiCo is on the right track with its snack and beverage businesses combined.
“I firmly believe that PepsiCo’s value is maximized as one company,” she said. “It was created as an integrated snack and beverage business, and its success is tied to this combination.”
Ms. Nooyi said in international markets PepsiCo has a model it follows when it is building its business. The company builds and extends its scale with beverages and then snacks follow, whether through “greenfield” efforts or acquisition. The snacks business benefits from the beverage scale that has already been established.
“Outside the Americas, our beverage and snacks leadership is comprised of one team and deeper into the organization talent flows seamlessly between snacks and beverages,” she said. “In fact, in some countries we have very fully integrated snack and beverage business models with snack and beverage products carried on the same route truck.”
In North America she explained that the company has back office operations that are shared services across accounting, transactions, processing, call centers, I.T, and research and development.
“In R.&D. we have synergies across multiple platforms, including flavorings, packaging, environmental initiatives,” she said. “And in procurement we have one global center of excellence with deep capabilities.
“In sales, we align with our key customers’ strategic priorities by executing on top-to-top (summits) and joint innovation that utilize our full portfolio to share unique shopper and consumer insights and provide cross-category product and merchandising solutions. And in go-to-market we are piloting promising in-store merchandising models designed to reduce out-of-stocks in high-volume stores.”
She noted that even in areas of “focus,” such as manufacturing and marketing, the company is able to realize the “power of one” by sharing best practices through the transfer of ideas and talent between the two businesses.
“So in North America we are already realizing some of the potential of power of one, and we will continue to deliberately and systematically pursue every opportunity area to realize its full potential as we go forward,” she said. “Net-net PepsiCo is an integrated company with two highly focused and complementary businesses, snacks and beverages, with a nutrition business nested within these two segments.
“It is simply a clean, focused company that derives its strength from a world-class snacks business augmented by a geographically diverse, iconic, profitable beverage business.”