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Swinging wildly between splurging and skimping, has PepsiCo India lost its way?

Over the past decade, the company has been losing or barely holding on to its market share in various categories 

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Published a year ago on Oct 23, 2020 20 minutes Read
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August, 2014: A bunch of curious people watched Sachin Tendulkar quietly make his way through the lobby of the Taj Mansingh. The master blaster made brief stops to oblige fans with a picture or an autograph.

In one of the suites above, Indra Nooyi sat with members of her India team. As Chairman and CEO of PepsiCo, she had flown down for the 25th anniversary of the India business. A grand party would take place later that evening, though that was not really on her mind. The priority was to focus on a new idea, which had intrigued Nooyi, and Tendulkar was there with his confidantes to discuss the finer points. It had been less than a year since the cricketer had called it a day, but his popularity had remained intact, and Nooyi was aware of it.

The meeting started post lunch and it went on for a good two hours. For about a year, Tendulkar and his team had drawn up the idea of a milk-based protein fortified drink. PepsiCo India would launch the product with Tendulkar backing it. Nooyi listened intently and she was smitten by the proposition. At the end of the discussion, she delivered her verdict: “Let’s do it.” A month later Tendulkar was in the US to sign the formal agreement with Nooyi and the plan was to be in the market with Oats+Milk over the next year.

Narrating the story, a former PepsiCo official makes his disapproval of the whole deal apparent. He says all of this was being planned few months after the company reported a terrible year – it was deep in the red in FY14, with loss of Rs.2.8 billion. “To get into a new business in a really bad year did not seem like the right thing to do,” he says. 

It could be argued exactly the other way – that a crisis is the best time to look at a new direction, and the local leadership decided to head that way. Except, it was a difficult period for the company not just in terms of profitability; employees’ roles were being overhauled without their buy-in. Therefore, the product was launched three years after the idea was pitched by Tendulkar and it wasn’t sold too aggressively in the market. Oats+Milk bombed and was withdrawn in just a little more than a year. A company spokesperson says, “Continuous innovation is core to the company’s DNA and spans across business operations whether it is products, distribution or marketing. The Oats+Milk initiative provided PepsiCo India with a guidance to further strengthen focus on flavoured oats and not package it with milk.” 

PepsiCo’s approach to Oats+Milk is an illustration of its lack of persistence with its India strategy. This has cost it market share, revenue and profit. Since 2007, the business here has struggled with frequent management change, inconsistent strategies and erratic performance. A former senior executive says, “Almost every year, the company changes strategy. It’s not easy to work like that.” In FY19, net profit had plunged to a fifth of what it was a year before to Rs.350 million. In FY20, the company sold its bottling business in the south and west, which caused the profit to zoom to Rs.4.34 billion but, as the company spokesperson says, “On a like for like basis, normalised profit after tax showed a gain of 58%.” Even with that growth, net profit stood at Rs.570 million or a net margin of only 1.08%. 

Globally, when Nooyi wanted to change the focus of the company – from carbonated drinks (CSD) – to healthy foods and beverages – she seemed on point. In 2006, as PepsiCo’s newly minted chief executive, she was facing a changing market. In the US, an increasingly health-conscious population had begun to drop sugar-heavy foods from its diet. Obesity had been declared an epidemic in the country, schools were restricting the sale of snacks and drinks in their cafeteria and sugary drink makers were being nudged to do calorie-control in their products.