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
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