How Indra Nooyi ushered Pepsi into the 21st century
The story of PepsiCo’s visionary leader Indra?Nooyi
We're celebrating Women’s History Month! Every Friday this March we will publish an article about a visionary woman leader in the world of business. We are kicking off the series with the legendary Indra Nooyi?— former ?CEO of?PepsiCo.
It was 1997, and the mood was somber in the executive strategy meeting at PepsiCo’s New York headquarters. PepsiCo’s fast-food business?—?Pizza Hut, Taco Bell and Kentucky Fried Chicken?—?had been struggling in recent years owing to rising costs and heavy competition in the restaurant industry. There was a growing clamor among PepsiCo investors that the company had lost its focus trying to go into too many businesses. However, the executive leadership hesitated on the restructuring plan. After all, the fast food business commanded nearly 37% of PepsiCo’s total sales in 1995, amounting to $11.3 billion. Tweaking the fast-food cash cow could spell doom to PepsiCo.
Time to?focus
Indra Nooyi was the up and coming Chief Strategist in the company at the time and was in the same meeting. Since joining the firm in 1994, Nooyi was tracking the ballooning operating cost of the fast food business and how it was dragging PepsiCo’s profits down to $430 million. She had also been tracking the growing profits of the beverage and snack business Frito-Lay, which had recently seen a 16 percent jump globally in the first nine months of 1996. Nooyi was convinced about what needed to be done and was ready to speak up. “PepsiCo simply isn’t adding enough value to the fast food business” she remarked in the meeting, turning around the argument with Chief Executive Roger Enrico.
“We need to bring all our human and financial resources to bear on our soft-drink and snack businesses and sharpen PepsiCo’s focus”. She advocated passionately. The hard-charging Enrico often voiced a strong commitment to the fast-food chains. So Nooyi’s argument after only a 3-year stint on the job, came as a bit of a surprise to him. More importantly her prescient vision left a lasting impression on him.
It was hard for Enrico to say no to the data and soon Indra Nooyi would have her way. Enrico would announce that PepsiCo would spin off its KFC, Pizza Hut and Taco Bell restaurant businesses. The spin off meant PepsiCo could focus on improving profit margins in the beverages business without factors holding it back. With the reports of spinoff, PepsiCo’s shares rose as much as 12 percent in heavy trading in the New York Stock Exchange. Indra Nooyi had just earned the trust of the board as a visionary leader with great ideas.
Building track record all the way to the board?room
The next year, Nooyi’s focus would go beyond financials. She’d notice the marketplace changing slowly toward health and wellness. PepsiCo’s own employees’ consumption were changing from regular Pepsi, to Diet and Pepsi Max. PepsiCo had no food brand that could play in the morning either. Nooyi recognized PepsiCo had to make some moves before things changed too fast.
Building upon her fast food track record, Nooyi orchestrated several moves. A smart acquisition of fruit drink company Tropicana brought PepsiCo into the non-carbonated beverage market, putting it in direct competition with Coke’s Minute-Maid. The $13 billion merger with Quaker Oats in 2000 brought a breakfast product to PepsiCo’s portfolio. And the merger with Quaker brought the Gatorade brand of sports drinks?—?which would soon become one of PepsiCo’s biggest successes. Nooyi also spun off PepsiCo’s bottling business, enabling it to go public and bringing new revenue sources.
The mergers and acquisitions carried Nooyi’s trademark foresight. PepsiCo’s products now had more synergy. The company could use Quaker’s highly efficient broker warehouse system to accelerate Tropicana’s national distribution, as well as grow its shelf-stable products. Further, Quaker’s line of wholesome snacks would pave the way for PepsiCo to expand beyond salty snacks and make inroads toward the health and wellness market. The market was quick to notice the moves as PepsiCo’s valuation jumped by $10, from a mid-$30 stock in late 90s to a solid $40+ stock in early 2000s.
Nooyi who by then had risen to the post of Chief Financial Officer, took the helm as President and board member of PepsiCo?—?owing to the strong and steady growth she helped drive.
Valuing roots and building bridges to?success
Having grown up in a humble family in Chennai, India, Nooyi’s background cut national boundaries and gave her a true appreciation for diversity. Famously known for wearing a traditional saree to a job interview at Boston Consulting, where she got the job, Nooyi expected those around her to bring their values to work. Her influence spanned beyond the board, as she was well liked and respected by everyone. Nooyi set an inspiring example of listening to others even when they disagreed with her, naturally earning broad trust.
She was also unusually collaborative for someone in the top suite of a Fortune 500 company, who wasn’t afraid to be vulnerable, seeking help and information when she needed it. Nooyi valued building bridges, and maintained friendships with PepsiCo’s three ex-CEOs who served as her informal advisors. When time came for her to don the top position at PepsiCo, she had the thoughtfulness to ensure her rival for the position got a pay raise and was given influence in the company. In doing so, she created an ally out of a potential adversary.
When she was named CEO in 2006, Nooyi carried forward her values toward health and wellness with a renewed purpose. She recognized how food and beverages were impacting consumer health and in early 2007, launched PepsiCo’s new mission “Performance with Purpose”. The program aimed to place environmental goals and customer & employee well-being on par with financial goals. She made a bold commitment to reduce sugar and sodium in PepsiCo’s core snacks and sodas, and created the Global Nutrition Group to add healthier products to its lineup.
Holding firm to your?vision
Nooyi by now had widely earned the reputation of a clairvoyant leader and a strong executor. She’d push people until they came up with a solution and seldom took “I don’t know” for an answer. Like when she drove her team to find an alternative to the expensive and invasive palm oil, and held firm until the team cam up with rice bran oil alternative.
Her tenacity around values near and dear to her would be tested again in 2014. As part of her vision to take PepsiCo toward a balanced portfolio, Nooyi introduced three clear categories for PepsiCo’s product aimed at consumer awareness. “Fun for You” (the sugary drinks and salty snacks), “Better for You” (low calorie and sugar-free options), and “Good for You” (wholesome options like Oats).
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However, PepsiCo’s new directions did not sit well some investors, chief among which was activist investor Nelson Peltz who called for PepsiCo to spin off its beverages unit from the better-performing snacks business. He argued that the beverage-side was holding the food-side back, and that Nooyi was neglecting Pepsi’s core products by focusing on “Good For You” items.
Nooyi held firm. “What we are deploying are sensible strategies,” she pushed back to the media that year. “The products work together.” And she was right. The company’s third-quarter profit surpassed analysts’ expectations. Shares in PepsiCo had risen nearly 17 percent over the last 12 months, handily outpacing the S&P 500-stock index. She brought results to silence her critics and in doing so built an unshakeable image as a socially responsible leader.
After nearly two years of public wrangling, billionaire investor Peltz comes to a truce. Nooyi’s vision is here to stay.
“We can ill afford to be a country where women drop out of the work force.”?—?Indra
The thick glass?ceiling
When PepsiCo appointed Nooyi as CEO in 2006, she was only the 11th woman running a Fortune 500 firm?—?a number that was zero until 1994. The industry appeared to be moving in the right direction, albeit with glacial pace. While women comprised half of the managers and other professionals in the American workforce, only 16% were women in the corporate ranks of Fortune-500 companies.
By the time Indra Nooyi stepped down in 2018 the ranks of woman CEOs had dwindled further, as she was replaced by a man?—?Ramon Laguarta. Three other CEOs retired the same year as Nooyi?—?all replaced by men. Though there were still twice as many women leading Fortune 500 companies compared to 2006, it was a declining trend. The number of female chief executives had dropped 25%, down from 32 to just 24 women in top jobs.
“The issue is not women in the C-suite, it’s a leaky pipeline?… at the early stages. We get enough women coming into the work force?… But by the time they get to Level 2 and Level 3, they just drop out?… for several reasons.” Nooyi advocates in her characteristic visionary tone. “One that can be addressed quickly is this tremendous unconscious bias. I was fortunate to have a good support system that enabled me to retain focus to the demands of my role. But I’m an exception than the norm.” Companies were not mandated to give parental leave, leading to people just dropping out of the workforce. “… and then we wonder why they don’t go up to the top. We can ill afford to be a country where women drop out of the work force.”
A lasting?legacy
Nooyi, who stepped down in October 2018, left behind a nimbler PepsiCo, that was more responsive to the evolving tastes of its customers. She was a pioneer in her commitment to fighting obesity, truly acknowledging that companies needed to change. She understood the impact of the epidemic very deeply, and started putting into place key elements that all companies now accept as normal.
Nooyi made big hires that tipped her commitment to healthier eating. In 2007, she hired Pepsi’s first chief scientific officer, Mehmood Khan, and its first director of global health policy, Derek Yach.
Nooyi presided over a significant expansion of PepsiCo’s business. Under her, revenue grew by 80%?—?from $35 billion in 2006 to to $63.5 billion in 2018, while the company’s share price nearly doubled. By the end of her 12 year tenure?—?7 years longer than the average CEO?—?half of PepsiCo’s revenue came from healthier food and beverages at PepsiCo.
Dive deeper into Indra Nooyi’s journey
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