Dlint THURSDAY, 21 DECEMBER 2017 AHMEDABAD '

PepsiCo's midlife crisis in India Changing consumer preferences and rising competition have led to a fall in market share and revenue that

the.US-based food and beverages maker has failed to arrest despite shifting focus to healthier offerings

NEW O::LHI

FaI'ihgsa,es,riSingcompeti­tiOll, changing cusLOmer

_ prcferences ... Yoll name it. Squeezed from all sides, America n rood and bever­

age giant PepsiCo Inc. is strugglingto find its feet in India, 28 years afier it first stepped intoilieOOllnlry.

PepsiCo lndiaHoldlngsPvt.Ltd,maker of a range offoods and bevcl1\ges jndud­lng Kurkure, Quaker Oats, Pepsi and Gatl)T':lde,t'ndcdfiscalytc>arW17 (FY!7) with a revenue ofRs6,540 crore, its filings wlthRegistrarofCompanles (RoClshow, less than its 2012-13 fi llu re of Rs6.9~H.R crore,Thedecllnealso'showsllponmar­ket share data provided by independent research agencies. conf:nning: PepsiCo has been losing fizz in India.

Thecon:pany,however,says ithJS been transformmgits product portfolio III one prthewor!d'sfastestgro .... ing markeisfor packagcdgoods, aiming 10 "Chango the Game~ by bulJding a portfolio thilt has ·Somethingfor Everyone".

sports drink Gatorade. ·Con~umers are looking for trust and commitment from brands. 'Tills hasbeena trend that wehad identifiP1"::l a few years back and ha\'e been moving towards driving authentici ty and pannering with sourcesof authority. W saJcl a PepsiCo Ind ia spokesperson.

In 2015, the company withdrc ',y from sponsoringdolJ1esticcrickettournament Indian Premier League OPTJ . ln 2012, 11 had commItted Rs396.8 crOie as tit le sponsorship of IPL for five seasons between 2013 and 2017.

PepsiCo India, however , had In 2016 signed a four-year contract with the Board ofCon!r:)! for Cricket iil lndia to become the ground sponsor for all One· Day Inter­national andTest matches to be played in the country. The company plans to pro· mote itssports drink~ brand Gatoradeori theground.

As Indians shifi [ 0 ho:!ahhicr options such as fruit juices, PepsiCo India has failed to check the falli ng sales oHls core carbonated beverago:!s in the past five years. Its fruitju!ce brandTropic:ma did not gain market share, while its snack brands such as Kurkure and La)'s contin­ued to sl ip and the company's elTorts 10 crack India 's breaHast marlie~ \vith QuakerOats SilW limited success.

PepsiCo India hai been trying lopromote ~verages that are nor carbonated, snacks that are more suited to /0(01 tas tes and other products that a re marketed as healthy.

GO HEALTHY, GO PREMIUM DlUingihepasldecade, PepsiCohasset its eyes on Indi;j's breakfast marKet with Quaker OalS, with the agendao?making Indians eat ~healthy· breakfast. Starting with oms, Ihe company e.'{tended the brand 10 Indian breakfast items such 3S upma llJlCi paha, and later launched ready­to-cook idU,dosaandkbichrl. But Quaker Oats is still a small brand in India, and It did not gain market share.AccoJ:(!ing io Euromonitor,QuakerOatshasa9% ma.r--· kCI share (Value) in 2017, a marginal drop fTom9. I% iI120l3.

In May, PepsiCo further extended

lntcrnationa.l , PepsiCo's flagship snack 1 wastryingtomovetoan assct·lightstruc­brand Lay's lost share from 8.1% (retail ture. valucloflndia'sS3vourysnacksmarketin In November 2014, about a year after On top ofthis,PepsiCo india nowhasto

contendwilhaJeadershiptr:msi:iQn,aftcr the 9 October resignation of D. Shin­kumar, its chainnan and chief executive

calendar year 2013 t04.4% in 2017. Shivakumar joined, PepsiCo fndia sold ils

+ officer(CEO),whowill leavc thecompany on 3\ December.

The company disagrees: -Lay's has enti re company-owned bottling opera­been growing double digits quarter on . tionsln north and east Indillto Varnn Bev­qual1er, ' said aspoke.sperson at PepsiCo eragesUd,a fil1Tlo .... 'Uedby Ru\lJaJpurta,

Shlvakumar's exit did not surprise many. "It'sob\ious. Thecompanyf;Uled to grow in one of world's fastest growing markets (for packaged consumergoorls) and !llsstill making loose, ," saki an analyst

india, bu t did not provide numben; to aiming to SOlve costs th rough increased back up the claim. operational and supply-chaineffi.cienctes.

Interestingly, nearly 15 months ago, Jalpulia, whonowCQntTolsbottlingof

withaman~m~ntco~.tingfirm,seek-

PepsiCo India kicked oIT an intern;u morelhan5O%0fPepsiCo:ndia'sbe\,er­project t()cransforrn La}~s wlth theailll to ageportfolio.has hirrlselfcntcred the food grow in the hyper,compeUtlvt: s avoury and \)ao,·erag~market. ar,d 1s rcadyl.ng f<>r snacks market in indIa thaI has an esli- a portrolio expansion to cross $5 billlon mateii3.206contenaim. UimerdiiS,PCP- ,· revenuebY2oo6fromarourid·SI.s6ifiiOJJ siCoe;>..i.cnded the brand, included a pre" in .20W,Mintreported on 17 August20lfi. mlum val'iant, increased grammase JalpUJiadoc!ined tocommentonPepsiCo

inganonymlty. Shivakumar hadjoined in December

2013-aboutamonthafter Pep.siCochair­pers.onand CEO Indra Nooyi announced aSS.5 billion invt"stment in J ndia by 2020.

(weight of chips in a packet!. cut costs in India. , supply chain and manufacturing by SinccShivakumarjoi.nedPepsiCo lndia

Financially, FYH was not a good year fortheAmcricansoftdnnks makcr.

increasing capacity util ization, among in December 2013, he was working on Others. mal.llIg the organization lean. Hedldn't

Lay'swasnOf.a1one.According loEuro· do it by reducing headcounl but by DECLIXINGSAJ,ES monitor, the market share of PepsiCo's enhanclngefficicncy,reducingwastage, For FYI4, PepsiCo Indi'} reported a loss of com puffbrand l~urkure fell to 3.l% (retail cutting down time lapses in supply chain Rs'280 crore, against a profit of Rs17.6 value) in 2017 from+,4% in 2013, despite lUld inventory, among othe rs. crore in the previous year, Its RoC filings Its efforts to boost sales through exten- Duringthesetlu"eeyears, PepsiCo India show. Revenuegrowth too fell t03.1% in slom. In May 2016, Pep~iCo-that had shifted to larger distributors to cut down fYI4from 14.8%a}'earago, oeen sell ing I\u rkure rom puffs since thenumbertolGO.Theinventorywasalso

In FYl5itmanaged l0rec!ucethe Joss to 1999-extended tm.brand .oother salted reduced from 15 to 4 days. About three-Rsl77crorebutjustayearlateritjump€d snacks including navratan mlx, chil!i fourths o f PepsiCo India's inventory is to Rs538 crore after it rcstrocturlXl bot- chatka,khattam~tha mix and aJoo bhu· now managed by its vendors andil has cut tlingopera Lionsin lndia. Jla.hopingt·ocounter home-sn:m,nHaIdI· dO\.mwarehousi.ngbyclose to4Q",(,..More-

!\otjustthis.Aftermanyyears, PepSiCo ram Foodslnternat!onal P\'t. Ltd, its big· over, theorgani1.ationmoyed to become India reported a decline in revenue that g~t competitor in the snack; segment. "lean"' by filling up around 83% of jobs year, do\Vl\ 18% to Rs6,626 crore from that has been selling these products Since internally. Rs8,130crorein FY15. 2003. Also. there were elTorts to make the

The company, however, claims the PepsiCo'sother snacksbrandsLehar, orgattization a.....set-!ightwherepossible.lt resultsarenol comparable. WOur20l5 -16 Uncle Chipps and Cheetos, which never has cut dm'ffi CO<ilS ln thesupply chalnand reported financial metricsarenotstrict1y had sizeable share in India 's savoury startedusingartificialintclllgcnecforpre­comparable ve-rsus the prior year due to snacks market also slipped, shows Euro- dictions and forecasl.At pt'(>sent,PepsiCo timingoffranchising acthitics and one- monitor data. Thetrendisslmilar forcar· timeimpactsfromchange-s in accounting bonated beverages.Hs flagship Pepsi lost p ractices. On a like-to-Iike comparable sharetotouch 13.4'Jro (retajlvalue)incalen­basis, we have grown our net revenue with dar year 2016 from 14.9% in 2013, accord· momentum across our portfolio in this ing to Euromonitor data. Its carbonated period. Weha\'eaooimprovcdouroper- drinks brands Mountain Dew and 7UP ating profit margins in this period and gaincdmarketshare,whileMirinda'sfeJl. continuetofoclJsonimprovingprofitabil- · Carbonated be\'erages makers are itythroughstrongcoSl. productivitymeas- slmgglingglobai!y.ln India, the govern- . tlfes,~ said PepsiCo India chief financial ment has also beentakingatoughstance officer and vice-preSident (finance) Raj- against therolamako:!rsbyincreasingtnx. deep Datta Gupta, Plus, therearecampaignsbyhome-grown

ID (he year ended 31 March 2017. the fkms like PatanjaJi Ayurved ltd against company reponed revenue uf Rs6.540 carbonat~ beverages." said a Mumbai' crore, majori ty of which came from non- based analyst who tracks food and beve r­carbonated be\'t:r3,,<>esancipack.1gCd food. ! age companies.

Incontra.. ... l. HlndustanCxa-Cola Bev- Thestory is nodifferenl fOT its flagship erages Pvt. Ltd that accounts for two- fruit juice brands Tropicana and Slice. thIrds of Coca· Cola's business in India, Tropicana's CllJrke! share dropped from reported an 11% growth In reven ue to IO.2%in20J3 (rerail\'aluelto8.S% in 2016 Rs9.472 crorein FY17. andSliceslippedmarginalIyfrom 1.S.~ln

According to Datta Gupta, PepsiCo 20l3toI5.o!.,%in 2016,accordlngtoEuro-India'sgro\\th In these<:ond halfoff)'17 monitor. W3S Impacted "on account o r some macro ·Tn fruit -based bc\·crages. Pepsi could headwinds, but business momentum has not keeppace\\;th Dabm india Ltd'sRe<l!; been recovering over the last three Quar- and other brands like ITC Ltd's B Natural tel"S. Weareconfidenl tha t wearewell-po- and Patanjalrsjuic:es .:;amelnto the play. sltianed for growth in India. w.!>jch isakey Besides. thc reareelhnicbever .. gcssueh emerging market for PepsiCo.~ as the ones made bycompanicsllke l'lec-

While it is yet to fil e de tailed results forBeverages,~saldanexewti\"ci1l acom·

wilh RoC, it isesl imated (hat the fi rm petingfirm.asking not toberwncd. managed to lower.its loss to around Hsl50 PepsiCo India, however. claims that its crorelnFYl7. The keyreasonbehind this zero sugar cola Pepsi fllacktli~'itness!llg lossreductitmis se\'ere cost-cutti ng.Dur- rapid growth, outpacing all other low­ing the past three years. PepsiCo Indi3 sugar prodUCTS in the market. fts sports saved an estimated R~I.500 croreofcosts, drink Gato rade, launched in 2004, has part of which It "invested back in qual ity also beengrowing\\1tha dominant 82.4% enha:.ncemenf, according to a company market share in 2016 up from 80.1% in executive whodid not want to be named. 2013, but the water brnnd AquafiflaS3w its

Shlvakumar declined to comment for mar\;:e[ sh.are decline frolll ll. l% in 2Dl3 to the story. 9.9% inZ016.

FAU,ING~lARKETSIL\RE <;:i~":(> :;-013, almost every Pl'psiCo product lidS ios( market share iL) India. According

l o ;m~~e~~c!!~g~cy E~~nitor

GOINGLEAX Whlle th (~ company's sales lVere falli ng and its ,.))"OOucls were losing marketsh<\re 10 fast paced competition, PepsiCo In~ja

Report card PepsiCo India's key finaricials

Losing grip Food brands

Beverage brands

Qua.kerO<\ts to enterthe hK!i:m dairy mar­Ind13'SPl"OdUd.Placcmentacross thesup-1 reducing sugar content in its beve rages ke f- one of the toughest for a for l'i;!11 ply chain Is mainly determined by tech · induding carbonateddrinks, and ensur- mul tinational to break into. nologyand machines. nol humans. ingthat theoompanyis equ\pped to tackle "The company !s embarking on nutJi"

Accoroing lotwopeopleinthebottl ing challenges inlheforeseeablefuture. tion. There's demand ror food that i." business who did not want to be identJ· ·The PepsiCo it was in 1ndia in 20lH2 h~thyalld nutntious. And,it'saronsl.lm· fled, Peps!Co India has beenweighingtbe had to change,~Sh.ivakumarsaid in o!).e of er-driven demand backed b}' changing o ption to divest more to go "asset-light his eul"licl"ilUen1ews toM!IlI. lifestyle, double-income families, single and reduce capex~, Oul of 38 bottling While the change in proouci ml'(was households andmorewomenjoiningthe unIts of PepsiCo India, 24 are owned by part ofthecompan}'sglobrustrategy.Shi" workforce. Consumers are .... illingto bu)' frmchiseesatpresenland thecompanyis vakumar turned to localization to make packaged food as 10l)g they get healthy Ukely tosell the rcmainlngtofT<lnchisees those products work in"i:lJJ iii.·T'I-:e com- anCnu;rt;JouspRxlucts.~ Shivllkumaril:od over a period. said the peopkcltedabnve. pany t\v(.>Ukedsomeofthemwith ingred.i- said in hisJ:umall' intervi€W.

f>'"'P5iCotndi"decltnooto comment on ent$a.ndflavotU"8to suitlo<::alprefere1"loCes To ensure proflt abillty. saicl the Pep· ??~i.~l~rl1vesunen\s . In the past three yeat S)"P€p5\Co IndJa slCo JncJ!ae:<;=utJve~ltedabovc, the fl.nll

has l:'unclied-one new product in'cach , is rOcu.siitgonpremiu:nvariantsofeadi PORTFOLlOTRANSFORlIL\TION quarter-or a total of 17\n beverages, kcybrands.lhetargetlstooo;up)'ma~·

LIke its parent. PepsiCo India has been snacksandnuoition-extendedthewater mum shelfspacc, ' the executive added; lTylngto promote be\"Crages that arenot portfolio, launched energy drink Sting. Fo r the premium variants, PepsiCo is carbonated,snacksthatarcmoresuited to andreducedsugar and ca!oriesin someof trying tolevl'rngenewtradech~nBeJsfor local tastesandotherpackagedproducts its products. sales. ~E-cotnmerce and modcrritrade that 3!e marketed as healthy. . "Ourport!ollotransformationjourney have been :lt the forefront of ourelfort 10

Thiscameas partofPepsiCo'sstrategy in Ind ia began with the introduclionof premiumi7.ingourportfoliO\~ithpniducls to tran~ronn its portfolio, shift ing focu s 7L1' Nimbooz, followed by7UP NiOlboo:r, like Lay'sMaxx. Dorttos, Tropicana E..<;.<;en-from "F\.m-for-Yot( products,such ascar- MasaJa Soda(w\th5%lemonjuice}in 2013 tials," PepsiCo rnd!.:Isaid ina ~tatem~nt.At bonatoc bevei'"agesand snacks to health and ils rubsequent, continUing national theentrY!e\'eI:, the c(lmpanywtll continue and nutrition. Chairperson and CEO scaleup,7l)PRe\.ivc--tndia's li rsl hydro- ~ith lhemagicpricepoinlslikeRsIO,Rs15 Nooyihasbeenvocalabout theshiftandis tonic drink (adding to our functional and Rs20, mainly in the packaged food steering the company towards a purpose' hydration portfolio), introductionofpor- space, it added. . driven future tha t makes heaJthierprod- tion control wilbminicans(I50mOSiart- Snacks is a growing category fa: Pep-UCls, empowers .. moloyees and encour· ingwith Pepsi and now available in ;UP. siCa globally. Its revenue increased"l.3% ages envlrorunental responsibility, Health Mountain Dewand Mhinda andthelntro- forthequarterel1ced9 September; with and nutri tion asacategoryaccountedfor duct ion o f New and lmpro\'ed 7UPwith ~nackvolume rismg3.2% backedbyFrito· morethan 25%of PepsiCo'sgloba1reve ' reduced sugar in Gujarat lasl year and uy: Dorltos and Chcetos, offsct/ing a nue in 20i5. Tropicana Essentials this year. We have 3A% drop in beveragemlume, according

. ·We are doing every bit oflt in india,· aiso expanded the Himalayan portfolio to the company'sstatement announcing Shivakumarsaid in an interview to Mint 'I':ith Sparkling and Orchard Pure: Pep- theresullsforthequarter. on 2S January. siCo Indiasa.id in aslatement:

Shivakumar's primary mandate was to Besides the change in product offering, execute the transformation in India by the ftnn has also started leveraging new Intensify!ngfocus onhealth andnulrition. trade channels like e -commerce, and

forming partne rships -.vich reslauran~s like Burger King and theatre chains like PVR Cinemas. In India, PepsiCo moved from Ihe market sllaregame 10 focus on expanrungma.rketsforeachsegment,said

Tropkan3 Aquaf.na

the PepsiCo India executive quoted ear-lier. .

"The Innoyations stage gate process is one ofthe sL'{ key processes introduced in theCQmpany. We Mve introduced a lot of rlgou! in rheinnovalion proccS§, stan ing \\(ith strongconsumerfundamentals.We then market these innovations to custom­ersaheadoflimeandeveryfour months we have adeepdi\'{!into the lessons from the innovations we have launched," Shi· vakumartoldMintearlier.

NON-PEI'SlllRANDlNG PepsiCo has a\~o tweaked its branding exercise. The focus shifted from ilscort: carbonated beverages brands to food products andjuice brandTropic.ana. Even its chillers now come y,1th Tropicana branding. unlike the Pepsi one eadier.

·We have been on aJoumey ofuans­for ming our portfolio and afe moving ahead rapidly on our joumeyofmaking the India business fu ture ready, .... 'ith a strong focus towards nutrition and scaling up ollr go to market system," said CFO DaUa Gupta. .

The company has also changed the way it used to engage celebrities formarkcting and adHrosements.DuringShivakurn:u's tenure. thecompanycl.l t doWll celebri[)" engagement by around 70% in India. Instead ofspenctingon celebrity endorse­menlS, PepsiCo India started engaging \\-ith sourcesofauthority, as the company dCl;cribes, for each product segment that it terms healthy.

For Quaker, itgot on board chefVikas Khanna. and partnered wi th crir:keter Sachln Tendulkar for Quaker's value­a~ed_~airy :!nge and ~.~ndhu.t~~ .

THE ARCHITE(.'T"S EXIT The Mumbal-based analyst quotedabo..-e believes the results o f initiatives under­taken by Shivaktunar wilfbe visib!ein the. roming years. "The:company has under­gone amassiyetransf'onnation (in temlsof produCls and cost structuring). Results don't come overnight: added theanalyst,

TheAmericancompanyclidnoteShiva­kumar's role in the trallsfonna!.ion ofthe Indian entity. Commcnting on his exi t. Sanjee\' Chadha, CEO (Asia, MlddleEast and Africa), PepsiCo, said in a statement on 9 October, "Shiv has been inslrumental In leading the transfonnationjoumey tor tllecompariy. Notably,hehas been a key driver for portfolio transformation and I~elperl develop nUT nutrition businl!S&, launching winninglnnovatJonswith our QuakerandTropicana brands. Under his leadership . ..... e also deepened consumer engagement with our !Iagship brands. ~

PepsiCo India's trade partners agree: "PepsiCo has changed under $;hlv. Shiv is Quick, he and his team engages with part­ners to make things bene!1clal for both. PepsiCo even tweaked strategy for the e-comme rce channe l !;Ja~d on our inSights," sa.ld Hari Menon, co· founder and CEO of online groceIY store Bigbt.u;-ket.com. .

AgreedR:QeevVarmall,CEOorBurger King India Pvt. Ltd. ~There'sa shift in Pep­siCo's clilt t1 re during the paM thr~e-and· a· halfyears. Thechange issuch that Pep· siCo even lets liS e;-;rerirnent with thE-ir beverages to build our products or cam­bos. While Shiv is extremely :result ort­ented, rela tionshipalwaysgetsth .. prior­ity:he ~id .

No matter what PepsiCo Tndla's part­nerssay,Shivakumarisleavingadifficu!l pitch for his successo r Ahmed EISheikh, p,arlier senior vice-president and general manager for PepsiCo Egypt and Jordan, whotookover asCEOon l No\"ember.

WithfaJl ingmarketsh.arcs:lJ)drevenue that's at a flve-yearlow, the non· Indian CEO has a fomlidable task ahead.