PepsiCo Paid a Price for Transformation

By Atiya Riffat

PepsiCo India has had to “pay a price” for transforming its business over the past two years, according to the beverage and snack company’s first expat president, Ahmed El Sheikh, who took over from D Shivakumar five months ago.

“We took a decision two years ago and we had to pay a price for that transformation, including stepping up play only in certain high-margin categories for some brands and altering distribution. We have to put it on the right track for the future. There was impact on shares in some categories and impact on net revenue and some businesses,” he told ET in his first interview since taking charge of India operations.

The maker of Pepsi and Mountain Dew aerated soft drinks, Tropicana juices, Lay’s chips and Kurkure snacks, lost market share in its mainstay carbonated drinks business. In addition, there has been a spate of exits at senior to mid-levels and speculation of bottling operations being refranchised to an external partner.

RJ Corp, PepsiCo’s biggest bottler in South Asia, now operates the company’s bottling franchisee rights across 20 Indian states and two Union Territories. PepsiCo has a tie-up with Varun Beverages to distribute its Tropicana juices, Gatorade sports drinks and Quaker Oats.

Coca-Cola grew double-digits in carbonated soft drinks while PepsiCo declined in the first quarter. PepsiCo did not comment on specific market shares.

The Rs 22,000-crore carbonated soft drinks category in India itself is on a slow burn, with consumers increasingly preferring healthier options such as low-sugar or functional drinks, including packaged juices and flavoured water.

“We will be happy if colas grow in mid-single digits. That is a function of both changing consumer preferences and colas being a bigger base compared to juices and water, which are growing faster,” said Sheikh, who has been with PepsiCo for almost two decades.