Here’s how Indra Nooyi changed PepsiCo in her 12 years as CEO

Here’s how Indra Nooyi changed PepsiCo in her 12 years as CEO

Yesterday, PepsiCo announced that its chief executive officer (CEO), Indra Nooyi, would be stepping down. Nooyi, who took over the reigns of the beverage giant in 2006 as its first female leader, will be replaced by Ramon Laguarta, her second in command at the company. Nooyi will stay on as chairman until next year.

Over the course of Nooyi’s tenure as CEO, the company’s net revenue grew at an annualised rate of 5.5%, reaching $63.5 billion last year while $79.4 billion was returned to shareholders in the form of dividends and share repurchases.

To achieve this level of financial success, a number of large strategic changes had to be made. Here is what Nooyi changed about the company’s strategy in the last 12 years.

Pivot to healthier foods

Nooyi had always been keen on healthier options, having overseen Pepsi’s acquisition of Tropicana in 1998 and Quaker Oats in 2000. In anticipation of a continued decline in demand for soda and junk food, especially in the developed world, Nooyi drove a shift in PepsiCo’s snacks and drinks business towards healthier items.

As a part of a company pledge to reduce obesity rates, she reduced the sizes of chips packets and soda bottles, culled salt, fat and sugar content and introduced diet brands as aspirational alternatives. In addition to the zero-sugar versions of the company’s staple soft-drink brands and chips without artificial preservatives, a number of healthier food options were introduced, ranging from hummus to baked chips to cold-press juices and probiotic drinks.

In line with this “Performance with a Purpose” strategy and approach to consumer habits, Nooyi completed a number of acquisitions of health food brands such as Kevita, a probiotic drink maker, in late 2016.

Earlier this year, in May, PepsiCo announced that it had struck a deal to acquire Bare Snacks, a maker of fruit and vegetable snacks. As of 2017, “better-for-you” and “good-for-you” products, or healthier options, comprised 50% of the company’s sales, compared with 38% in 2006.

Growth of Frito Lays unit

Drinks have gradually become less important to Pepsi as focus has shifted to healthy snacks, which command a higher premium than traditional snacks. The Frito Lay unit has now grown to comprise of 46% of the company’s operating profit and around a quarter of its sales. With brands like Doritos, Lays and Smartfood, the unit has become a global leader in the snacks category and command a 66% share of the domestic market. In fact, Frito Lay North America has fast become PepsiCo’s most valuable product segment. Around 90% of its sales come from brands that have the first or second position in their respective categories.

Doubling down on emerging markets

Nooyi had made international expansion a priority. Under her watch, the company has made to conscious effort to expand its distribution network and increase sales by targeting the middle classes in developing regions of the world like Asia and Africa. Nearly 21% of PepsiCo’s net revenues came from Asia, North Africa, the Middle East and Latin America in 2017.

The company has established a strong foothold in India, the country where Nooyi grew up. In 2013, PepsiCo announced a plan to invest $5.5 billion in India by 2020, directly taking on Coke for the top spot in the country’s beverage market by doubling its manufacturing capacity.

Avoided a demerger

Nooyi successfully thwarted off an attempt in 2014 by Nelson Peltz, an activist investor, to split the company’s sluggish beverages and fast-growing snacks business and have them managed differently. She argued that retaining both Pepsi and Frito Lay under one roof was vital to maintaining a competitive advantage over other food retailers, especially for cross-promotion opportunities.

The public argument over the split ended in 2016, when Peltz sold his $2 billion stake in the company. However, Nooyi’s departure could now see a renewed push by investors to divide the company.