BOCA RATON, FLA. — More than a decade ago, Indra Nooyi, chairman and chief executive officer of PepsiCo, Inc., made headlines with her “5 Cs of leadership.” On Feb. 18 at the Consumer Analyst Group of New York meeting at the Boca Raton Resort and Club she once again called on the “5 Cs,” but this time she linked them to driving the Purchase, N.Y.-based company’s sustained performance.
The “new 5 Cs” include commercial agenda, cost focus, capital allocation, capabilities and culture.
Ms. Nooyi said much of the company’s commercial agenda involves driving “bigger, more scalable ideas for our global brands while maintaining local relevance and innovation.”
Describing how the process works, she said PepsiCo begins by aligning its global brands around distinctive brand ideas, such as “Live for Now” or “Do the Dew.” Next, the company designs for execution across television, video, social and retail channels, creating programs that may be leveraged across markets around the world to drive efficiency. Third, PepsiCo adapts the global platforms and programs with local cultural nuances to drive increased relevance. Lastly, the company “activates” at the local level by using the latest in media and communications thinking.
PepsiCo’s second priority going forward is cost focus, which Ms. Nooyi described as “making every penny a prisoner and using them effectively to drive value, creating growth.”
“We are targeting $1 billion in productivity savings annually through 2019 through leveraging our global capabilities of scale, exploiting automation and advanced technologies and implementing smart spending, which is our version of zero-based budgeting,” she said.
The third “C” focuses on capital allocation.
“We are driving higher return on invested capital and greater CapEx efficiency through a broad menu of initiatives including: focusing intently on relatively lower returning businesses; leveraging our partnerships; and implementing lower-cost business models,” Ms. Nooyi explained. “We have made particular progress in our capital spending efficiency, having reduced CapEx as a percentage of sales by 70 basis points since 2011. And one of the key ways we’ve done this is by increasing the capacity utilization of our existing assets. So, for example, we have extended the productivity of our logistics by increasingly integrating the over-the-road network of our businesses to eliminate any empty miles in the system. And in manufacturing we are increasing throughput by boosting line productivity.”
Elaborating on capital and offering some thoughts on where mergers and acquisitions fit into PepsiCo’s priorities, Ms. Nooyi responded to an analyst’s question by stressing that PepsiCo will not shy away from investments that can grow the company in a meaningful, value-creating way.
“We have the management bandwidth; we have the capability; we have the talent; we can do it,” she said. “What we are struggling with is finding the right opportunities out there. The small ones are just excessively priced because everybody wants to go after it. And the big ones each have their warts, whether it is management team not there, the business model doesn’t fit or it is a conflict of what we’re doing in our own strategy. So we have yet to find that gem of a company out there that we think can meaningfully create value and grow PepsiCo better than what we are doing today. So there is nothing out there at the moment.”
To further advance its commercial agenda, PepsiCo is turning to its fourth “C,” which is building capabilities.
Ms. Nooyi said Pepsi is enhancing its design capabilities to deliver more compelling experiences to its consumers and customers. To accomplish this, she said the company has established a global design team with world-class talent who is highly engaged with the company’s brand teams to enhance brand identity and brand experiences, as well as being highly integrated in product, packaging and equipment design.
The final “C” is culture, an area in which PepsiCo is hoping to foster a culture of learning. Ms. Nooyi said PepsiCo has a “terrific” culture that is strongly based in values and people with a “can-do spirit” and “must-do” sense of responsibility and accountability.“So tying it all together, I would say to you that the PepsiCo model works,” Ms. Nooyi said. “We have the right balance, the right priorities, the right vision and a commitment to creating long-term value for all of our shareholders.”