NOOYI’S CHEQUERED ‘INDIA’ RECORD

In the US she leaves a healthy business but the Indian subsidiary’s performance during her stewardship has been less impressive

In 1997, Priya Mohan Sinha, who headed PepsiCo India’s business, discovered an attractive opportunity. The Timblo family, which bottled Coke in Goa, was willing to jump ship owing to serious differences with the Atlanta-based beverage giant. With the cola wars at its peak, getting Timblo on board would be a big victory for PepsiCo, especially after Coke outbid it to acquire Ramesh Chauhan’s soft drinks business, grabbing 75 per cent of the country’s carbonated drinks market. Speed was the essence and Sinha discussed the potential opportunity on the phone with Indra Nooyi, then head of strategy, in New York. Within days he received a midnight call to go ahead. Nooyi had convinced then PepsiCo chairman Roger Enrico to seal the deal.

That was not the only time Nooyi extended a helping hand. She put together a $100 million war chest , the proceeds of which were used to offer interest-free loans to bottlers who lacked the cash to expand capacity to compete with Coke. Sinha says her support helped Pepsi raise its market share to over 49 per cent from less than 10 per cent.

Yet, after she announced her exit as CEO from the US parent last week after a 12-year stint, not everyone sees her India record so charitably. One of the most high-profile of the Indian-origin CEOs of US corporations, Nooyi kept close tabs on the India business, visiting the country often, either for official purposes or to go to her hometown in Chennai. But in contrast to her successful record in the US, the performance of the Indian business has been chequered.

For instance, her critics point out, despite a $5 billion investment plan spread over seven years that she announced in 2013, PepsiCo has not been able to dislodge Coke’s dominance in carbonated drinks, with Sprite and Thums Up ruling the first two positions in terms of volumes. And in spite of her big push in snack foods and healthy products, PepsiCo India Holdings’ revenues have fallen steeply and the company is still in the red ( see chart).

Three key issues in the Indian operations defined Nooyi’s tenure. The first was her prescience in spotting the growing concern for health foods as a business opportunity. Says Lloyd Mathias, a former senior executive of PepsiCo India: “She was the earliest in the corporate world to recognise health as a valid consumer concern and work on strategies to minimise its impact on PepsiCo.”

So PepsiCo was the first in India to introduce stevia in beverages, and set an ambitious target to reduce sodium in its snacks by 75 per cent by 2025. That this was not an empty promise was reflected in the fact that this year, the company launched Kurkure, the snackfood pioneered in India, with ragi (a coarse millet), cut sodium by 21 per cent, and has introduced a readymade tetrapak breakfast of oats and milk.

Her masterstroke was to set up a joint venture with Tata Global Beverages to provide affordable hydration products. Despite initial hiccups the gamble worked, delivering a compound annual growth of 34 per cent CAGR in the last five years on the back of Tata Gluco Plus, which is sold at Rs 10 per cup, and fortified water at ~3 a pouch.

In the mainline soft drinks business, Nooyi’s strategy was to hand over operations and distribution to bottlers wherever they could run the business better than the company-owned bottlers. “What this did was put too much power to a few bottlers with the company control getting weaker. What I believed is that they should get a counterweight by getting in an international bottling chain,” said a former senior PepsiCo India executive.

For instance, Ravi Jaipuria controls franchise rights in 20 states and owns the franchise for beverages in north as well as east. His company also distributes Tropicana juices, Gatorade and Quaker Oats (Jaipuria did not respond to requests for a meeting).

Many of these strategic ups and downs in PepsiCo India were reflected in Nooyi’s somewhat contentious relationship with the CEOs. Rajiv Bakshi, who headed the company when she took charge at the conglomerate’s Purchase, New York headquarters, was shifted out of India and given a role in Asia (he quit the company within a year). Manu Anand, who become president in 2011 (after Sanjeev Chadha, who succeeded Bakshi, moved into a larger role overseas), left in 2013, clearing his table in a day without a successor being announced. No official explanation was offered for this abrupt exit but insiders say his decision to buy the title sponsorship of the Indian Premier League at a whopping ~4 billion a year, seemingly without commensurate benefits, did not go down well with Nooyi. This, even though she was instrumental in signing a deal to become the main sponsor for the 1999 cricket World Cup in London and prodded Pepsi offices in various cricket-playing nations to share the cost.

Nokia India D Shivakumar, who succeeded Anand, lasted four years, stepping down in 2017 to join home-grown Aditya Birla group. For his successor, Nooyi broke with tradition of hiring an Indian and appointed Ahmed El Sheikh, who ran PepsiCo’s bottling business in Egypt and Jordan.

Nooyi’s critics may have been silenced had the top- and bottom-lines been healthy. But the last time the company made profits was in FY2013 after which it went into the red. “The key problem has been that costs went up dramatically, which is being addressed now. Also, too much money was put into water which has wafer-thin margins, though it gives volumes,” says a former senior executive.

In response, Nooyi introduced the “Power of One,” strategy, which saw the company merge its beverage and snacks distribution system to leverage synergies. Shiva Kumar oversaw this process with a clear mandate of cutting costs and reducing distributor attrition, which fell from 25 per cent to less than 3 per cent, as a result of which losses dropped sharply in FY17.

But market share remains an issue. And if Euromonitor International retail value market share is to be relied on, many of its key brands lost market share has between 2013 and 2017 — which include Pepsi, Tropicana, Lays, Kurkure amongst others.

PepsiCo India while declining to share numbers on market share or financial performance responded: “PepsiCo has been on a journey to transform the India business, with a focus on long term sustainable and profitable growth and we have been moving steadily in that direction. We have embarked on a three-year transformation journey in 2016-17 and are very happy with the progress.”

The spokesperson added that although operating revenue was flat in 2017-18, “we rationalised our portfolio towards more profitable play in channels of our choice and delivered a strong innovation with 19 new product launched in the last three years (2015-17). This number would be 87 if we were to include flavours, packaging formats and pack sizes.”

PepsiCo insiders point out that the fall in revenues was inevitable as the company shifted manufacturing and distribution of many products to its franchisee Varun Beverages, controlled by Jaipuria.

Perhaps the distance of over 11,000 km between PepsiCo’s global headquarters and the India operations impacted Nooyi’s performance. Yet she was hands on in many ways. For instance, she kept a close tab on campaigns in India and was so appreciative of the Dil mange more ad campaign that she asked other countries to replicate it in their own languages. Those who knew her well attest to her personal touch in business relations. When Ajay Bijli, who controls PVR Ltd, the country’s largest exhibitor and a key corporate client for Pepsi, wanted advice for his children who planned to study in the US, Nooyi took time out of a hectic schedule to advise them. PVR has remained a loyal Pepsi customer. Whatever the style of management, her successor will have his work cut out in getting some fizz from the India operations.