We are re-engineering our costs: D Shivakumar, chairman & CEO, PepsiCo

PepsiCo is focusing on health and nutrition drinks through Tropicana and Quaker in India

As sales of cola drinks suffer, beverages major PepsiCo India Holding’s financials have been under pressure. During FY16, its net loss widened to Rs 538 crore from Rs 177 crore a year ago and revenue fell by 18 per cent to Rs 6,626 crore. The Indian arm of New York-based cola giant is effecting a lot of changes, starting from its product offerings to its communications strategy. D Shivakumar, chairman and chief executive officer (CEO) of PepsiCo in India shares his views with Arnab Dutta. Edited Excerpts:

PepsiCo’s global CEO Indra Nooyi announced recently that the firm will transform its portfolio and cut down sugar contents significantly by 2025. What is the plan for India?
 

All our products are superior and in blind product tests, we consistently beat out competitors. Transforming our product portfolio is a key area for us. We are trying to promote hydration drinks, which is  the need of the hour, and focusing on health and nutrition through two brands – Tropicana and Quaker. We are also gradually reducing the sugar content in our beverages. We are the first one to bring in a low-sugar based product. Based on our learnings from our already existing product like 7UP and after consultation with the authorities, we will decide the road map ahead.  

Food is a significant business for us. Currently, we are trying to occupy the breakfast and in-between meal moments, which will be crucial for our growth.

Volume growth of carbonated beverages have suffered in the past two years. Is your recent focus on healthier beverages to offset the risk?
 

No. See, due to change in lifestyles, income patterns, demographic shifts, stressed urban lifestyle, people are looking for healthy nutritious food which can be prepared quickly. That’s the need we have identified. So, our initiatives towards healthier portfolio is to address this market.
 

This sector is no longer an elitist industry. Soft drinks are the cheapest beverage available on the streets. So, lack of affordability is not a reason behind   subdued growth. Poor volumes have been associated with unfavourable weather in recent times. Seasonality has been a challenge for the sector. But, summer has also been normal volume growth as per expectations.

PepsiCo has not hiked prices of beverages in the recent past, even though sugar prices have gone up by nearly 35 per cent in the last one year and losses widened. Isn’t it to address falling sales?
 

The market in India is built around a few magic price points for a business like ours. In beverages, these are Rs 10, Rs 15 and Rs 20. Placing beverages at these price points with the right value is what we have been trying to do. To address rising sugar cost, we have been re-engineering the cost base completely to meet the target. The industry, in the past, had raised prices by three to five per cent on an average. Sometimes that might not be enough. But, we are not looking at price hikes at this moment.
 

Losses widened because of some of the decisions that we took, like handing over bottling operations for North and East to one of our franchisers.

During 2016, PepsiCo India saw a number of top level exits. What is the issue? 
 

Most of them left as they got solid roles in other places. We have a very good talent screening system and we groom potential leader who can take up bigger roles. Thus, replacement has never been an issue. In the past three years, we have been hiring from the pool of B-school students that undergo corporate internship with us and two-third of our employees are now.

You’ve been sending weekly mails to employees where you share your views and experiences. Is it also to increase engagement with them?
 

Our engagement level with employees is very high. I think employees want to know what the top management is doing, towards which the direction their company is heading and how we need to align with that. So, I send e-mails every Monday morning where I share my experience from the past week and the way forward.

Last year, you withdrew from the title sponsorship of the Indian Premier League. What is your promotional strategy in terms of the media?
 

In a digitised world, brands may earn or lose trust of consumers any day. So, our focus is on social media and digital platforms where changes happen fast. We have social-lessoning tool where we study the consumers every morning where we get to know whatever they have said about us and our brands. We constantly upgrade our pitch through partnerships with Facebook and Google. All our senior management members are undergoing the certification programme under google. Another important aspect of digital world is that a lot of consumers question why this company or that brand even exists. So, a lot of the content and communication are based on promoting the purpose of brands. Television advertisements or sponsoring cricket tournaments are things of the past now. Share of digital marketing cost out of our total advertisement & promotion budget is one of the highest in the industry.