Pep­siCo In­dia Feels the Chill from Note Ban

De­mon­eti­sa­tion had a sig­nif­i­cant im­pact on the cola co’s busi­ness in In­dia, ex­pect to over­come the woes by March, says global CEO In­dra Nooyi

The Economic Times - - Brands: Creating Desire - Ratna.Bhushan @times­group.com

New Delhi: Pep­siCo In­dia may emerge from the set­back caused by de­mon­eti­sa­tion only by the April-June quar­ter, global chief ex­ec­u­tive of­fi­cer In­dra Nooyi said, the seventh leader among con­sumer com­pa­nies to voice con­cerns over the note ban’s sig­nif­i­cant im­pact on sales.

“Our hope is that by the time Q2 rolls by, we would be through the bulk of the de­mon­eti­sa­tion chal­lenges,” Nooyi told in­vestors on a call af­ter the US bev­er­age and snacks maker an­nounced its fourth-quar­ter re­sults on Wed­nes­day. “The new cur­rency and the dig­i­tal cur­rency will be back in cir­cu­la­tion and we’ll be back to re­tail ac­tiv­ity com­ing back to nor­mal. I’m not sure we are to­tally out of the woods.”

Nooyi said scrap­ping of the high-de­nom­i­na­tion ru­pee notes in Novem­ber was a mas­sive change be­cause 80% of the cur­rency was taken out of cir­cu­la­tion and the im­ple­men­ta­tion of the mea­sure had its share of chal­lenges.

“De­mon­eti­sa­tion had a sig­nif­i­cant im­pact on our In­dia busi- ness in Q4. It hit in­di­vid­ual re­tail­ers sig­nif­i­cantly. And there’s still some lin­ger­ing ef­fects. In­dia is a big coun­try,” she said.

While New York-based Pep­siCo did not spec­ify In­dia num­bers, it said the Asia, Mid­dle East and North Africa (AMENA) re­gion was neg­a­tively af­fected by is­sues such as op­er­at­ing cost in­fla­tion and higher raw ma­te­rial costs. Net in­come fell 18% to $1.4 bil­lion in the fourth quar­ter, while net rev­enue in­creased 5% to $19.5 bil­lion from a year ear­lier. On the out­look for the first quar­ter of 2017, Nooyi said: “At this stage of the quar­ter, we ex­pect or­ganic sales to de­cline at our AMENA divi­sion, driven by in­creased lev­els of volatil­ity through­out the re­gion.”

Pep­siCo’s global bev­er­age sales rose1% in the fourth quar­ter and sales of food and snacks went up 3%.

In­dia’s car­bon­ated drinks sa- les are es­ti­mated at over ₹ 14,000 crore. Vol­ume growth has been in the low sin­gle dig­its for at least four quar­ters as con­sumers in ur­ban mar­kets in­creas­ingly pre­fer health­ier drinks, while in the ru­ral ar­eas, they’ve been scal­ing down on dis­cre­tionary spend­ing.

Nooyi told an­a­lysts the com­pany was mak­ing “sig­nif­i­cant progress in trans­form­ing its port­fo­lio.” The maker of Pepsi and Moun­tain Dew fizzy drinks and Lay’s chips said last year it would re­duce the sugar con­tent in juices and car­bon­ated drinks across mar­kets in­clud­ing In­dia by 2025. Nooyi said the com­pany had a ‘pipe­line of in­no­va­tions’ such as Trop­i­cana Es­sen­tials func­tional juices and Quaker foods, which she said were help­ing to fuel sales in de­vel­oped mar­kets such as the US.

Glob­ally, the Pepsi cola trade­mark con­trib­utes 12% of net rev­enue, while 25% comes from ev­ery­day nu­tri­tion prod­ucts such as bot­tled wa­ter and foods and Pep­sico’s Hur­dles drinks packed with grains, fruits and veg­eta­bles.

Food and bev­er­age mak­ers are fac­ing pres­sure from con­sumers, health ac­tivists and gov­ern­ments to make their prod­ucts health­ier in or­der to rein in obe­sity and dis­eases such as di­a­betes. Mea­sures to re­duce sugar in­clude re­plac­ing it with nat­u­ral and ar­ti­fi­cial sweet­en­ers and mak­ing smaller packs of bev­er­ages and snacks. In In­dia, while Pep­siCo is us­ing plant­based sweet­ener ste­via in 7UP, lead­ing to a cut of 30% in sugar con­tent, it is sell­ing co­las in smaller 150 ml cans. De­mon­eti­sa­tion an­nounced on Novem­ber 8 by Prime Min­is­ter Naren­dra Modi led to slow­ing down of sales across con­sumer goods, with global heads of com­pa­nies rang­ing from Coca-Cola to Unilever and Col­gate-Pal­mo­live stat­ing that the cur­rency curbs had sig­nif­i­cantly im­pacted their In­dia num­bers. Re­searcher Nielsen re­leased data that showed the ₹ 2.5 lakh crore fast-mov­ing con­sumer goods mar­ket could take a hit of about 1.5% of net sales, or ₹ 3,840 crore, in the quar­ter.

Nooyi is the seventh leader among con­sumer com­pa­nies to voice con­cerns over the note ban’s sig­nif­i­cant im­pact on sales

Op­er­at­ing cost in­fla­tion

Con­sumers shift to­ward health­ier drinks in ur­ban mar­kets Higher raw ma­te­rial costs

Dis­cre­tionary spend­ing scaled down in ru­ral ar­eas

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