Dividing to Conquer: Pepsi Shifts Organizational Structure and Management to Focus on Emerging Markets

By Mike Caggeso

Associate Editor

With ambitious plans for overseas sales and continued growth abroad, PepsiCo, Inc. (PEP) is reorganizing and adding senior-level managers to capitalize on opportunities outside of North America.

Previously, Pepsi was comprised of PepsiCo North America (with its own three divisions - Frito-Lay North America, PepsiCo Beverages North America and Quaker Foods North America) and PepsiCo International. Once reorganized, Pepsi will be split into three units, each with its own chief executive officer, consisting of:

  • PepsiCo Americas Foods.
  • PepsiCo Americas Beverages.
  • And PepsiCo International.

PepsiCo Americas Foods will include Frito-Lay North America, Quaker and all Latin American food and snack businesses, including the Sabritas and Gamesa businesses in Mexico. John Compton, currently CEO of PepsiCo North America and a 24-year company veteran, will become its chief executive.

PepsiCo Americas Beverages will include Pepsi-Cola North America, Gatorade, Tropicana and all Latin American beverage businesses. Massimo d'Amore, currently executive vice president of PepsiCo International, will become CEO of the unit.

PepsiCo International will include all PepsiCo business in the United Kingdom, Europe, Asia, Middle East and Africa. Mike White will continue his role as CEO of PepsiCo International, but will also assume global responsibility for two strategic corporate functions: procurement and information technology, including the company's business transformation initiatives.

Nooyi's Global Vision

Within the next five years, Pepsi is angling to sell as many gallons of soda and bags of snacks in its markets overseas as it does in North America, Pepsi Chief Executive Officer Indra Nooyi told Bloomberg News in an interview a week ago.

International revenue made up 37% of PepsiCo's $35.1 billion total sales last year, and is advancing at four times the rate of the U.S. and Canada markets - thanks to such market-tailored products as crab-flavored Lay's in China, and lentil snacks in India.

International revenue will help Pepsi reduce its reliance on the United States market, where it gets the majority of revenue, compared with only 30% for rival Coca-Cola Co. (KO). To that end, PepsiCo has acquired more than a dozen companies abroad since 2000. In the U.S. market, it now plans to market products to increasingly health-conscious consumers, reducing its reliance on sugar-laden soda and such high-calorie salty snacks as Fritos.

"I suspect it's going to be somewhere around 2010 or 2012, in that area, where it might catch up,'' Nooyi told Bloomberg. "At its current trajectory, around that time, you could see a potential catch-up."

PepsiCo trails Nestle SA in global snack and beverage sales, while Coca-Cola leads in worldwide soda sales.

Through the first nine months of this year, PepsiCo Americas Foods accounted for about 45% of the company's revenues. PepsiCo Americas Beverages accounted for about 30%. And PepsiCo International accounted for about 25%.

Nooyi, the CEO, expressed confidence that the new organizational structure will deliver double-digit profit growth in the next few years.

"Given PepsiCo's robust growth in recent years, we are approaching a size which we can better manage as three units instead of two," Nooyi said yesterday. "Creating units that span the North American and international markets, as well as developed and developing markets, allows us to better share best practices among our North America and international businesses, while providing valuable development opportunities for our senior executives."

Positioning for Growth, Battle

Pepsi's management and corporate shuffle basically splits its food and beverage divisions in half in the Western hemisphere. Meanwhile, food and beverages are under the same roof for its Eastern hemisphere operations.

The division allows Pepsi to allocate more time and attention to its prime growth market - Asia. During the third quarter, PepsiCo International profits rose 22% on the back of double-digit growth in China, Russia, Pakistan and the Middle East. And it gives the company a better position in the next big battle ground in the never-ending cola war with Coca-Cola

Money Morning has extensively covered Pepsi and Coca-Cola's Asian strategies - as well as their sugary sweet third-quarter earnings in which Pepsi's profits were up 17% and Coca-Cola's up 13%. [McDonald's Corp. (MCD) and Yum! Brands Inc. (YUM) also are engaging in a similar war for the coveted Asia market.]

Pepsi and Yum! are two of the globally focused U.S.-based companies that several of Money Morning's experts have identified as opportunities investors might want to research further. Their business models for growth don't involve just Asia, but will benefit from having a solid strategy for Asia, said Contributing Editor Keith Fitz-Gerald.

And the more business they do outside the United States market, the more they will benefit from the falling dollar, which make U.S.-made goods cheaper for foreign consumers to buy. [Our research report, "Investments for a Weak Dollar World," is one of several research reports that list which U.S.-based companies follow this strategy and benefit in the face of falling greenback. The report is free of charge; please click here].

News and Related Story Links: