Indra Nooyi Case FINAL

Leadership – The Indra Nooyi Way

Group Members: - Sanjay Singh Ramkumaar B. Singh Sanket Jain Ruchi Sinha Neha Verma Navneet Kaur Kalra Ritesh Kumar Ankit Pandey

INTRODUCTION

Introduction

• Indra Nooyi became the 5th CEO of PepsiCo Inc. in 2006 at the age of 50

• Ranked #3 by ‘Forbes Magazines’ for the Worlds 100 most Powerful Women

• Ranked #1 by ‘Fortune Magazine’ for 50 most Powerful Women in Business

• Joined PepsiCo as SVP in 1994

• Promoted to CFO in 2000

• Faced problems regarding product health issues

Awards Received By Nooyi

Financial Highlights Of PepsiCo

Nooyi As A Strategist

Problem 1 - Restaurant Business

-> Sluggish phase with lower sales, volumes & profits -> Adopted a management & distribution model -> More suitable for a packaged good industry

Strategy – • Management & distribution for restaurant business requires larger capital than the beverage & snacks business

• Indra Nooyi believed that the restaurant business reached a stage where it could be spun off into an independent business

• She believed that it did not fit in with the core PepsiCo business of snacks & beverages

Problem 2 – Over expansion of International Beverages Business

-> Repercussions felt on its Balance Sheet -> Venezuelan bottler was bought off by its competitor -> Bottlers in Brazil & Argentina ran into financial problems -> Consequently posted losses in special charges & asset impairments, international write-offs & restructuring

Strategy – • Spin-offs & divestitures• Assessed strong brands, good cash flows & strong workforce as PepsiCo’s strengths

• Rigorous financial controls to maximize cash flows• Expansion of international business in emerging markets

• Money-spinning moves such as strategic M&As, emerging markets infrastructure development & stock buy-back

Problem 3 – Increasing Distribution Costs & Lack of Contact with Customers

Strategy – • Introduced Direct Store Delivery System (DSD)• Directly stocked the shelves of the retailers through their sales force

• Enabled retailers to order supplies directly from PepsiCo

• PepsiCo sales representative would frequent these stores a fixed number of times in a supply chain cycle

• Fixed number of hours divided into – • Selling the product to the retailer• Stocking its shelves • Taking orders for replenishment & fresh supplies• Interacting with the customers

• Dual advantage of reaching customers directly & helping PepsiCo to eliminate middlemen in order to reduce costs

Problem 4 – Underutilization of Real Estate; required higher capital investment & was labour intensive but generated a lower level of returns as compared to the core business

Strategy – • Visited competitors’ restaurants• Found heavy competition & saturation in the fast food industry

• Nooyi argued that PepsiCo could not add enough value to the fast food industry with the current service chain

• Divestiture of the company’s larger restaurants to PepsiCo’s existing shareholders

• Taco Bell, Pizza Hut & KFC were spun off into an independent company Tricon Global Restaurants, Inc., which was later renamed as YUM! Brands Inc.

• Smaller restaurants such as Hot’n Now, Chevys, California Pizza Kitchen, D’Angelo Sandwich Shop & East Side Mario’s were sold to new investors

Problem 5 – Competition – Coca Cola acquiring a juice brand named Minute Maid

Strategy – • Acquisition of Tropicana (rival of Minute Maid) for US $ 3.3 billion

• Helped the brands foray into healthy beverages market

• Helped in improving company’s brand image & added to PepsiCo’s earnings

• Indra Nooyi had the foresight that the brand possessed great potential to improve PepsiCo’s bottom line

• Hence she was even ready to settle for a lower Return on Investment VS

Problem 6 – Bottling business required high levels of investment & was labour intensive

Strategy – • Spun off the bottling business into a separate business called Pepsi Bottling Group (PBG)

• This resulted into higher margins• An IPO took place for PBG & PepsiCo retained a majority stake in it

Nooyi Becomes CFO &The Quaker Oats Merger

Nooyi Becomes CFO Focus on Innovation, Finance, Procurement, Investor Relation, IT

Strategies - • Acquisitions and product development• Product synergies

Image makeover

• Healthy snack and drink• Innovations in Quaker & Tropicana• Acquired SoBe: Herbal Tea & Life Water in Portfolio

The Quaker Oats Merger

• 2001 - Merger with Quaker Oats for US$13.8 Billion

• Acquired ownership of Gatorade: leading sports drinks in USA

• Business Process Optimization Plan

• Logistical Challenges: Implementation of Quaker’s Enterprise Software

• Implemented Direct Store Delivery in Quaker Oats

• “Power of One” Strategy

Challenges Of Achieving Double Digit Growth Rates(Neha)

Nooyi as CEO

Nooyi as CEO

• In October 2006, Nooyi got promoted as PepsiCo CEO

• Nooyi believed that as CEO she needed to present PepsiCo as a good sustainable global company

• She adopted vision of “Performance With Purpose” – focusing on sustainability of environment

• PepsiCo shifted its focus from US saturated market to emerging global markets

• Increased the size of the executive team to 29

CONT•Believed in diversity

•Encouraged women & socio economic culture

•Believed that communication is of great importance

during strategic implementation

•Nooyi is a tough negotiator & motivator

PepsiCo Product Portfolio CategorizationCategory Type of Product Examples

Fun for you

Highly indulgent Pepsi, Ruffles & Lays

Better for you

Continued to taste good but healthier alternative

Baked Lays, Low Fat Ruffles, Rold Gold Pretzels

Good for you

When consumed, added back functionality into one’s system

Tropicana with Calcium & Quaker Oats

Strategic Acquisitions as CEOCompany Type of Product

Bluebird Snacks & Izze (2006)

Snacks & drinks

Sandora (2007) JuiceNaked Juice (2006) Organic juice & Soy drinksJV with Unilever Ready-to-drink teaWhole Foods Market (2007) Flat Earth Fruit & vegetable

chipsLebedyansky (2008) Juice

Response To Global Economic Slowdown

Response To Global Economic Slowdown

• PepsiCo faced number of economic challenges in 2008:

- Fuel prices - Cost of Raw Material- Packaging Cost

• Strategies applied by Nooyi:- Raise prices across product categories- Product Weight outs

• PepsiCo remained recession proof

• Introduced ‘Productivity for Growth’ program- Shutting down plants- Pre tax savings- Restoring growth of beverage products

The Criticism

The Criticism• She was criticized for her lack of operational experience. She had joined PepsiCo after six years in consulting and at PepsiCo too had worked as a strategist before becoming CFO and later CEO

• Critics believed that Nooyi was merely anticipating the regulation and following consumer trend rather than making conscious effort to make PepsiCo’s product healthy.

• A study conducted by City University London on the world’s 25 largest food companies including PepsiCo on their on their conformity to new global diet and health agenda in 2006, found that PepsiCo had not adopted the standards relating to limiting the portion size, on having a specific health policy on advertising, and on initiating staff health programs

The Criticism….cont.• Nestle believed PepsiCo was merely following health and nutrition standards to avoid obesity related law suits

• Critics felt that efforts taken by PepsiCo to reduce the adverse impact of its product on the health of its consumer were not enough, further adding that the existing non soda alternatives were low on nutrition and contained high level of sugar and more calories then recommended as a part of healthy diet for children

• In 2003 PepsiCo came under attack from environmental group in India for having high level of pesticides content in its beverages

• Though India accounted for a relatively small portion of PepsiCo’s revenue, analysis felt that these allegations had an impact on tarnishing the companies image worldwide

Learnings From The Case

Learnings From The Case• Over expansion is not always good

• Need to have vision as we can see that even if a particular business is giving less ROI, it may generate cash flows & improve the bottom line in future

• Terms learnt – Divestiture, Spin Offs, Strategic M&As, Diversification

• Strategic Leadership

• “Performance With Purpose” – focusing on sustainability of environment

• Direct Store Delivery System (DSD)

THANK YOU