Photography by Vito Palmisano
John Compton, the CEO of PepsiCo Americas Foods & Global Snacks Group, knows where PepsiCo's power comes from: 19 product lines each producing more than $1 billion in retail sales annually.
Each brand in itself is a powerhouse – Frito-Lay, Gatorade, Quaker, Tropicana and Pepsi-Cola–yet they are stronger for each other, contends Compton. That's the idea behind PepsiCo's synergistic Power of One strategy, which builds on economies of scale and the strength of the company's brand equity. Compton plans to help make it more obvious in the coming months, even as restless shareholders and some industry analysts are calling for the company to split in two, as Kraft Foods and Sara Lee have recently announced they will do.
On a bright, late October day in his Purchase, N.Y., office, Compton spoke with Retail Leader about the unified growth strategy. As he settled into a chair at the head of his conference table, Compton twisted off the top of a Pepsi Max and took a swig–no calories, plenty of caffeine. It seemed to fit the character of the man and the interview.
"A big part of the Power of One is to see not just how the two businesses can be complementary, but how they can demonstrate that one plus one equals three," says Compton, whose PepsiCo Americas Foods unit pulled in $22 billion in revenue last year, making it the largest business unit within $60 billion PepsiCo. "We feel we have the responsibility as the largest food and beverage supplier in the U.S., and the second in the world, to be the fastest growing too."
Yet it's the desire for swifter growth that is spurring some investors to call for the company's split. Short-term investors see a company with an average annual share gain of about 4 percent, compared with Coca-Cola's 13 percent share growth. And they know that analysts like Jack Russo of Edward Jones in St. Louis have pegged PepsiCo's snack and beverage operations at $85 to $90 a share on a stand-alone basis, a roughly 50 percent premium over the $62 per share the stock was trading at in mid-November.
"The dilemma boils down to the time horizon. There's a group of people who would like PepsiCo's stock price to immediately go up," says Donald Yacktman, president of Yacktman Asset Management Co. in Austin, Texas, and a PepsiCo investor. But the trade-off is a potentially larger payoff over the long term, he says.
Strategies for the future
Compton, 50, who grew up as the son of entrepreneurs and has climbed the ranks of PepsiCo during 28 years, is one who sees far greater opportunity in the future by developing all the company has to offer. His previous roles as chief executive officer of PepsiCo North America, CEO of Quaker Tropicana Gatorade, and vice chairman and president of Frito-Lay's North American Salty Snacks Division give him a wealth of firsthand knowledge about how the core businesses can best work together. While the company's flagship cola brand this year fell to the No. 3 spot in U.S. volume for the first time, below both Coke and Diet Coke, Compton's product categories have been a strong suit for PepsiCo with global sales driving growth.
So despite recurring news accounts of a boardroom showdown and PepsiCo's own announcement that it would continue reviewing its 2012 business plan, Compton is proceeding full steam ahead with a splashier Power of One program designed to fully articulate all that the company brings to the market.
"We like our businesses ... Our leadership position comes from the fact that we have leading share in the categories in which we compete," Compton says matter-of-factly. "We sit in some 13 different aisles in any given store at any given time, including the front end and displays."
The Power of One seeks to harness the synergy of each brand, all the way back through the supply chain. It's a philosophy that dates back to the founding of PepsiCo in 1965 through the merger of Pepsi-Cola and Frito-Lay, as the chief executives of the respective companies saw a competitive advantage to pairing a cola company with a snack foods business. The pairing made sense then because consumers purchased and consumed the products together–and they still do.
Today, with commodity costs high and consumers watching every penny, the company sees a unified strategy as a way to generate efficiencies across its brands. "We've been working on this for a little over a decade, and we're ready to move it to the next level," says Compton.
Kicking off the campaign
Consumers will first notice the new program with PepsiCo's advertising rollout during the 2012 Super Bowl at Lucas Oil Stadium in Indianapolis on Feb. 5. "Coming out of the gates, our Super Bowl event takes Power of One to a whole new level–and we certainly believe that it's going to take our sales and those of our retail partners to a new level of growth," Compton says. The big Super Bowl marketing splash will coincide with a national campaign in which virtually all PepsiCo brands are collectively merged, which PepsiCo has been fine-tuning for the past six months.
"Right after the Super Bowl, you will begin to see the in-store identity come to life," Compton says.
The in-store rollout will include brand connections, new sizes and stronger occasion-based messaging, he says. For example, Pepsi-Cola might be paired with Lay's potato chips in the Sunday circular and at in-store displays. Convenience stores might convey Power of One with gas-pump toppers, cooler-door signs and other in-store displays.
"Think of it as a brand look, and how we might be able to integrate a yellow bag of Lay's and a blue bottle of Pepsi," Compton says. Likewise, Tropicana juice and Quaker oatmeal might appear together in marketing messages. "In POS material, the consumer will know that these products go together... . She will identify that our snacks and beverages are one," Compton says.
While PepsiCo has been using creative promotions that tie together several brands for big holiday occasions like the Super Bowl, Memorial Day and the Fourth of July, "the Power of One elevates that experience to 52 weeks out of the year, not just six or eight," says Compton, who also heads PepsiCo's Power of One–Americas Council, which is charged with coordinating efforts across operating systems.
Over time, the company will sync manufacturing, sales and distribution activities for multiple brands, while aligning promotions across the entire product portfolio, PepsiCo chairwoman and CEO Indra Nooyi said in a September announcement. The goal, Nooyi says, is "greater operating efficiency, speed to market and value."
To that end, the company has spent nearly two years integrating the bottling business into PepsiCo after it acquired its largest domestic bottlers in early 2010, paving the way for more company-wide coordination. PepsiCo itself was a pioneer in direct store delivery, Compton recalls, and no other CPG company has as much in-store exposure.
Powering up for brand synergy
To those who are skeptical that Power of One will pay off in cost savings and new business, PepsiCo points to the strength of its international business, which operates with a unified system. PepsiCo reported net earnings of $2.0 billion in the third quarter, ended Sept. 3, a 4 percent increase from the year-ago period on a 13 percent climb in net revenue to $17.6 billion, due largely to strong international sales. Acquisitions in foreign markets are driving sales growth, and Compton suggests that by tapping some of the new global opportunities, PepsiCo Americas can expand the domestic business far faster than the market.
"One of the best acquisitions we can make is to acquire our own products that are sold in other markets, and lift and shift them quickly," Compton says. "[For instance] let's lift and shift those products that do well in Brazil and Mexico into pockets in the United States where it makes sense. We have great beverage flavors around the world that could [work well] in the United States."
Mixing and matching its brands from around the world also can help PepsiCo cater to changing consumer demographics in the United States. "We brought in [Kurkure crunchy snack brand] from India [for example], and sold it in certain stores in the Northeast, and it did particularly well," Compton says. "We have to be relevant to the vast majority of the consumer segment across the country to keep our growth rates going."