India is a fundamental growth story: PepsiCo’s Indra Nooyi
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New Delhi: Indra Nooyi, PepsiCo Inc.’s chairman and chief executive officer, announced a Rs.33,000 crore investment in India over the next six years after a meeting with finance minister P. Chidambaram on Monday in New Delhi. In an interview, Nooyi spoke about changing consumer habits and the growth potential for the company’s food and beverage portfolios. Edited excerpts:
Will this investment help bring India among the top five markets for PepsiCo?
India is a very, very important market for us. It is in the top 10 and it will keep moving. This (investment) could get us to the top five. It will be a function of how fast the other markets grow and how fast India grows. So it is a relative game, not an absolute game.
This is a gigantic investment. India is a fundamental growth story irrespective of the short-term slowdown. We are leaning into the growth story. We think this demonstrates our confidence in India. We actually think, if more companies start to lean in one by one, India will get back to growth.
When will you see return on these investments and turn profitable?
We don’t wait for investment returns. We expect to pay as we go. We are very, very capital conscious. We assess returns...everything.
There has been uncertainty about the top management of Pepsi in India after Manu Anand quit. When will you announce a new CEO?
Since Saad (Abdul Latif, the company’s chief executive officer for PepsiCo Asia, Middle East and Africa region) passed away…this is my first trip here. In fact, this is my first long trip to India in a while. I haven’t been here in a couple of years. Sanjeev Chaddha has just taken over as head of Asia, Middle East and Africa and has great knowledge (of) India. He has a great familiarity with the market having run the country some time ago.
Once this trip is over, we will go back and think what is the best way to run India. We have not made a decision about it. Right now Gautham (Gautham Mukkavilli, CEO—beverages at PepsiCo India Holdings Pvt. Ltd) and Praveen (Praveen Someshwar, CEO—foods at PepsiCo India) who are excellent executives run it.
How far are you from your target of a $30 billion nutrition business by 2020. What are the major challenges in achieving this?
It’s just getting to growth. If our current growth trajectory continues and with a couple of small tuck-ins, we should get there. The challenge is that with nutrition you are very close to the crop. The whole idea about good-for-you products is, there are very few processing steps. So, if you have variation in crop prices you have to really think about how to generate adequate profitability to grow. For example, if one year you have an oats crop shortage, you can’t substitute oats with something else in Quaker Oats.
The advantage of nutrition is that it is very close to agriculture. The issue with nutrition is that it is very close to agriculture. So we have to manage it very carefully and balance the portfolio. We have products that are close to agriculture and products that have enough processing steps so that we can still address the agricultural ups and down.
But it is a great business to be in because with ageing population in some countries and people wanting to be healthy, we offer a range of great tasting, affordable, ubiquitously available food.
Soda and diet soda consumption in the US has been consistently declining. Is it an outright rejection of this class of sugary drinks?
I’m not sure it is a rejection of all sugary drinks. I think cola had reached a point where it was saturating. So people are moving. There is much more availability of other beverages. I will give you a number…the US market is 20 billion 8-ounce cases. If you look at the market 10 years ago it was 60% carbonated soft drinks and 40% non-carbonated drinks. Today, it is 60:40 the other way. The market has shifted. The market tomorrow will be different from the market of yesterday which was the way it was because of non-availability of different products. So it is not that consumers are walking away from sugar beverages, they have a bigger repertoire to choose from.
So changing consumption habits are changing the way companies create products?
The interesting thing is that people still think of this as a cola battle between Pepsi and Coke. But it has long moved away from that to a liquid refreshment beverages market participation which is a very rich, thriving, multi-segment market. We do a lot of consumer insights. We look at demands. For example, there might be a need that says—couples unwind. So couples that are left alone after their children leave home...these empty nesters unwind in the evening very differently from when their children were around. What they eat and drink now is very different. We have to innovate for that demand space and see what product works for which demand space and in what packaging format.
Has Pepsi’s food business overshadowed its beverage business?
Internationally, beverages grew faster this time (last quarter results).
But going forward, will the snack food business grow bigger?
I don’t know. The beverage marketplace is two times the size of food marketplace. Globally, snacks is $500 billion at retail. Beverage is $1 trillion at retail.
In the beverage business we play more segments. In snacks, we play only the salty snacks business largely. I think both have huge potential for growth—one, because of its size and growth and one, because we play only in one segment.
Will some of the India investment go into acquisitions?
Not at this point. If there is an acquisition that comes up which fills a hole then it will replace our organic investment.
There is speculation on the company acquiring a local snack maker?
I am not planning to make any visits for now.
How are you going about innovation in India, especially for the rural market?
We are looking for low-cost solutions. NourishCo (a joint venture between Tata Global Beverages Ltd and Pepsico India Holdings Pvt. Ltd) is a great example of how we started off by saying we can’t figure this one out. We started off with a price and worked backwards as opposed to starting with costs and working forward.
But now we figured how to redo the supply chain, the entire business system, to make it commercially self-sustaining entity, so that’s what India is challenging us with…we start with a price point, decide where you want to penetrate and then work backwards.