Developing markets are key to PepsiCo's growth: Indra K. Nooyi
January 9, 2008
She has just finished speaking to her employees in Chennai and is scheduled to see her mother later in the evening. As the Chairman and CEO of the $35 billion (Rs 1,40,000 crore) PepsiCo, Indra Krishnamurthy Nooyi, 52, has her hands full, even though she is visiting her hometown for a vacation.
Dressed in a grey pant suit accessorised with a soft pink scarf, the energetic Nooyi walks purposefully into a suite at the swish Taj Coromandel in the city, where this interview will be held, and after opening an ice-cold can of Diet Pepsi, quickly settles down for what turns out to be a free-wheeling interview with BT’s Rahul Sachitanand over the next 45 minutes.
For the last few years, PepsiCo, best known for its range of carbonated beverages, has been trying to build a newer (and healthier) image for itself, growing its nonbeverage business by making large acquisitions of Quaker Oats and Tropicana, both steered by Nooyi herself. At the same time, the once very American PepsiCo has also been consciously trying to globalise its brand appeal as it seeks to focus on fast-growing markets around the world. The company already gets around 40 per cent of its revenues from outside its home market and Nooyi is using inorganic growth to boost its profile. Nooyi, a one-time rock musician and now occasional vocalist and guitar player, discusses her plans for PepsiCo, the industry and even her beloved baseball team, the New York Yankees. Excerpts:How has been your first year at helm of PepsiCo and are you happy with where the company is today?
Being CEO of PepsiCo is an incredible responsibility, but also an incredible privilege. It’s a responsibility because I get to lead such a large enterprise, but a privilege too because I lead such a great team. The PepsiCo people have a can-do responsibility with a must-do spirit, so when you have a team like this, it’s very easy to lead them. The first year has surpassed my wildest expectations. On the performance side, we have nailed it, but we’ve also done this with a heart, with purpose, in delivering what we call performance with purpose. This involves giving back to the community and making the environment even better than what it was earlier.
Operationally and financially, PepsiCo is doing very well. As the former CFO and now CEO, what are the ingredients of your secret sauce?
PepsiCo has been doing very well over the last few years (since Nooyi was appointed CFO seven years ago, revenues have grown 72 per cent and profits have doubled to $5.6 billion or Rs 22,400 crore) and I believe we can sustain this performance.I think the key ingredient to our continued success is our people, because everyone comes to work with a deep sense of ownership at the company; they truly believe that they can truly make the impossible possible and that’s a great motivator.
How do you think the US economy will shape up and are you worried at the growing clamour over the subprime mess and now recession?
Both issues depend on whether you talk to the bulls or the bears in the market (shrugs). The bulls will say, “hey, there is a slowdown and it’s to be expected, since we have had years of giddy growth,” and they will say GDP will grow between 2.6-2.8 per cent. Then you have the bears who will not call a recession, but will say that GDP growth could slow down to 1.5-1.6 per cent. I think the US economy is very resilient and when push comes to shove, I think people will figure out ways to sustain growth. Me? Personally, I am a bit more in the bulls’ camp and the hope is that the subprime crisis is something we work through and we emerge stronger from it. PepsiCo is itself one of those companies where in bull markets, people eat (or drink) our products because they feel good and in bear markets, they reach out for us because they need to comfort themselves (laughs). Overall, we are comfort foods either way. While I wouldn’t call ourselves recession proof, I would say, generally speaking, we handle recessions or down turns better than most others.
Are you worried by issues such as price increase in raw material and in commodities?
I think the big issue is if the inflationary situation in grains persists for two years or longer than that. The ethanol programme will be the key determinant. If it does scale up, then large scale planting needs to take place to offset this demand. If it stays at current levels, you won’t need to ramp up production. We can offset much of this through higher productivity or price increases, but I am not too keen on the latter. We don’t foresee any significant impact for now.
What is your vision now for PepsiCo and do you think that you have managed to expand sufficiently beyond beverages?
|“You can consume (all) our products with a rip, twist, flip or tear”|
PepsiCo has not been just a soft drinks company for a long time; PepsiCo has been a diversified food and beverages company. If you’ll pardon the marketing speech, let me take you through our portfolio.
We offer beverages of all kinds; we offer juices, sports drinks, many kinds of water, iced coffee and tea. In our snacks portfolio, we offer standard potato chips, extruded snacks, we offer Quaker healthy snacks. We give people the gift of time, since you can consume every one of our products with a rip, twist, flip or tear. We want to take convenience to a new level with our products. We recently moved from just two main business units to three to try and get more ideas from international businesses to North America and we want leaders to manage both developing and developed markets.
PepsiCo gets around 40 per cent of its business outside the US. Are you looking to grow this number and why?
We will make lots of tuck-in acquisitions in markets where we are not present or where we need to bulk-up (our presence). We are game for such acquisitions and we have already spent $1 billion (Rs 4,000 crore) on such deals. This is going to be a major growth driver for us, in addition to our organic growth, which will also contribute a major share of our business. We will look across the spectrum for our inorganic deals, but it would be nice to get more of these done across highgrowth markets. India is very much part of this growth, although there is not much here to buy. If there is, we will look at it for sure.
Has your evolution into these growth markets been as simple as expected? It took time for PepsiCo to find its feet in India…
I think you have to have a longterm perspective with these emerging markets. You can’t enter these markets and immediately expect to make the same sales and profits as in the West. There is a long-term build model; you have to be patient and you must learn to manage a longterm outlook better to be successful in these markets. Once your mindset changes, then you can navigate the results from these markets better. The portfolio of markets and products that PepsiCo has works very well; the thing about the firm is we have the growth markets in India and China, but we also have the stable developed markets, from where we can use funds to invest in growth. We have the beverages and snacks, which provides natural diversification; fun for you, good for you, better for you products; low per capita and high per capita products. Everywhere I look, I see balance and that’s why I am so bullish about the company.
Just as you took over as Chairman and CEO of PepsiCo, there were issues over closed plants and allegations of groundwater exploitation. Has that image improved over time?
I am looking at people like you to paint a better image (laughs). At the end of the day, private enterprise is required to be the engine of growth for economies, especially democracies, since they thrive together. Private enterprises are models of efficiency and governments can learn this from them. Private enterprise, in turn, has a responsibility to be a good citizen of the community it operates in. I would like to suggest to you that PepsiCo is a phenomenal citizen of any community it operates in. We are indeed the good company. Good in every sense. Let’s approach private enterprise with a positive mind and see what we can do to move the economy along, after all we have enough problems to solve and no one can do it alone.
How important is the image overhaul for companies like PepsiCo into more health-conscious outfits? As some critics argue, is this movement more reactionary than proactive?
Not at all; everyone else was reactionary. We were proactive back in 1991 even before I started out at Pepsi with the JV with Lipton Tea and launching Aquafina and I just hastened it along with Tropicana and Quaker. However, it doesn’t matter if you’re reactive or proactive, PepsiCo wants to offer its customers a culinary treat with its products. We like to place our products into two categories, ‘good for you’ and ‘better for you’ (in terms of taste and health) and we believe we can offer them the widest range in the market.
Given your experience in large M&A deals, do you have any advice for the raft of Indian companies buying their way into a global presence?
I think it’s fascinating and it’s globalisation at its best. If you really want to embrace globalisation, you have to accept companies in the West buying those in the East and equally, those here going westward. So, I think globalisation is being played out exactly as intended; you open up the markets and everyone benefits. There is a strong opposition with Indian companies because of the fear of the unknown; many companies in the West are unaware of those in the East that are playing in the global scene. Companies in India are sitting on large growth. India is the place to be seen right now. Every politician and business executive wants to be seen in India.
Are you worried about the Indian economy overheating at this current 9-10 per cent (growth) rate?
India needs to sustain this growth at 9-10 per cent to reduce under and unemployment. However, to sustain this growth rate, three things need to happen. One, infrastructure investment needs to happen and I don’t need to tell you that. Investment in this sector has to be massive. Secondly, the wealth being generated has to trickle down to the masses, it’s not good to be restricted to a select few. Finally, the government has to make massive investments in the Indian education system. I am a product of the Indian education system and demand far outstrips supply in the current system. Ultimately, this country’s greatest advantage is its people, so we have to invest in them. China is going to grow faster than India for us in every shape and form, but India is a 10- or 15-year market for us.
What are your plans for the India market? Are you looking to introduce new products and brands here?
We will expand the non-carbonated beverages substantially and we will bring many of our other brands in this segment to India. We will bring the whole range of snacks we have to India and develop many more snacks for India specifically. We will also bring the Quaker brand and many of its variants to India over the next few years. Aside from our business side, PepsiCo wants to do much more on sustainability in India (PepsiCo calls this area its ‘Purpose’ side), we want to do much more on water efficiency, energy efficiency, waste management and lots of innovative things to hold on to our people.
We hear you’re a (New York) Yankees and baseball fan. Do you manage to make time for these even today? We hear you’re a musician…
When I am at home and a Yankees game is on, it will be on the TV with the volume on mute; if they’re winning, the volume comes up (laughs). If they’re losing, the volume goes down and it’s just another uninteresting game. This season the Yankees flamed out in the first round of the Playoffs … it was heart-breaking. I go to games even now, a couple a year and try to stay in touch. Calling me a musician is an overstatement. I play the guitar and sing. There’s no fixed time you make for all this; one of the things you sacrifice when you reach this level. When I feel like listening to music, I do and I want to watch a game I do what I need to do, as long as it doesn’t disrupt too many peoples’ lives. Do I do it often? No. Would I like to do it more often? Hell, yeah!
Finally, did you always see yourself becoming the CEO of PepsiCo?
No, not at all. Not until my boss walked in and told me the board wanted me to be the next CEO I had no plans or ambitions for myself at this level.