August 12, 2018, 21:31 / Business / Interviews and profiles

Due to which the new head of PepsiCo expects to double the company's growth rate

From October 3, the post of CEO of PepsiCo will be taken over by its current president, Ramon Laguarta, Anton Osipov.

New PepsiCo CEO Ramon Laguarta / PhotoXPress

The chair of PepsiCo's president was empty for more than two and a half years before it was taken over a year ago by Ramon Laguarta, who also worked as president, but at a lower rank, at PepsiCo Eastern Europe.

In PepsiCo itself, the position of president appeared relatively recently - in March 2012. It was assumed that this was the number two person in the company, who was preparing to take the main post - CEO. Since October 2006, this chair has belonged to Indra Nooyi. She was expected to be replaced by John Compton, who headed PepsiCo American Foods. He became the first president of PepsiCo. Six months later, without waiting for Nooyi to retire, he quit the company. The post was accepted by PepsiCo Europe CEO Zein Abdalla, but in 2014 he also wrote a letter of resignation. When Laguarta took over the vacant position last September, he had no reason to be particularly optimistic: Nooyi said she intended to keep working and working. “I don’t have an undisputed successor,” she added fuel to the fire. “When the time comes for a change, whenever that happens, I think it’s great that our board of directors will have so many people to choose from.” Indeed, in addition to Laguarta, they named Laxman Narasimhan, who headed the company’s business in Latin America, and Hugh Johnson, the financial director, who in 2015 was also made vice-chairman of the board of directors and assigned to oversee online trading and information technology.

But it turned out that it was not in vain that Laguarta packed his bags and moved from Geneva to the headquarters in Purchase (USA) with his wife Maria and three sons. On Monday, August 6, PepsiCo announced that Nooyi would be leaving effective October 3, making Laguarta the sixth CEO in PepsiCo's 53-year history and the first Hispanic to hold the position.

Laguarta, who is well versed in PepsiCo's international activities, added to this a deep expertise of the company's entire portfolio during his time as president, Reuters cites a report from the investment company Cowen & Co. According to Cowen & Co analysts, "Laguarta is well positioned to continue executing PepsiCo's current strategy."

Nooyi is disillusioned with politics

Next year, Nooyi should also vacate the chair of the chairman of the board of directors. What is she going to do after she retires? She had not thought through the next step in her career, Nooyi admitted to the Indian newspaper Business Standard. She said that she would probably take a rest, go to New York Yankees games, “listen to music,” “take a walk in the woods.”

Henry Kissinger once suggested that Nooyi would make a great politician. “After PepsiCo, I really want to go to Washington,” she told Fortune 10 years ago. “I want to make my contribution: I will work for four or five years for free.” Now Nooyi has changed her mind. “There are business leaders who like politics and business leaders who would be lousy politicians. “I belong to the second group,” Business Standard quotes her. “Politics - no, it’s not for me.”

What does PepsiCo want to achieve?

PepsiCo lists the goals of its 10-year development strategy until 2025 as “Purpose Responsible” on its website. Specifically, the company plans for "a minimum of two-thirds of its global beverage portfolio to contain 100 calories or less from added sugars per 0.35-liter serving" and a minimum of three-quarters to contain no more than 1.1 grams of saturated fat per 100. calories and no more than 1.3 mg of salt per calorie. It also promises to increase the efficiency of water use in its production activities by 25%, and in the field of direct agricultural supplies in regions experiencing problems with water supply - by 15% and to replenish the water resources of the sources where the water is taken from in these regions by 100%. She intends to reduce the amount of waste sent to landfills to zero, reduce food waste by half, and make all packaging reusable and recyclable. On July 18, the company reported on the implementation of the program in 2017. In particular, the range of drinks containing less added sugars has been expanded to 43% - in 2016 there were 40%. This included Pepsi Cherry without sugar. About 80% of the grains used by the company were purchased from participants in the PepsiCo program for sustainable development of agriculture, compared to 34% in 2016. In Russia, among other things, a new complex of wastewater treatment facilities was launched at the company’s snack production plant in Azov. Together with the Rus food fund, the company donated 2 tons of food to more than 90,000 people in need in 19 regions. The company conducted almost 9,000 lessons in Russian schools on the global problem of climate change. And 13 seminars and trainings were organized for employees of 211 agricultural companies.

During Nooyi's leadership, total shareholder returns for 2007–2017 amounted to 162%, through dividends and share buybacks to them in 2006–2017. $79.4 billion was paid. Dividends per share almost tripled - from $1.16 in 2006 to $3.17 in 2017. Net revenue from $35 billion in 2006 grew to $63.5 billion in 2017, the company reports . PepsiCo shares rose 80%. True, the value of Coca-Cola shares has more than doubled, adds Time magazine.

Soda failed

Laguarta takes control of a completely different business than Nooyi. When she joined the company in the mid-1990s, there were three directions: the production of carbonated drinks, the production of snacks and a chain of restaurants. The restaurants have been sold, and PepsiCo has emerged as a serious player in the juice and health food market. For example, Laguarta eats PepsiCo's Quaker oatmeal with blueberries for breakfast and, like a true Spaniard, loves gazpacho soup, sold ready-made in an Alvalle package (also made by PepsiCo). His favorite cola is Pepsi Max without sugar, writes The Wall Street Journal (WSJ).

But betting on soda is unlikely to work. In 2008, in the company's most important market—the United States—its sales declined for the first time in half a century. In an interview with Vedomosti, Nooyi explained this by the increased assortment of drinks on store shelves and people’s desire for healthy food.

To improve financial results, PepsiCo raised prices, reduced packaging, and expanded assortment. This is how she managed to cope with the fall in demand for soda: profitability and quotes were creeping up, WSJ notes. Last year, more than 45% of sales came, as the Catalan newspaper Ara writes, from so-called guilt-free products (low in sugar and calories): snacks and drinks containing less than 70 calories per 340 g. In the UK, Mexico, France introduced taxes on sugar-sweetened beverages. Since last year, they have also been charged in Laguarta’s native Catalonia.

Not all is well with snacks either. Their large manufacturers missed billions in revenue in past years - consumers preferred more natural products produced by small startups, writes Business Standard. But although Frito-Lay also felt this trend, it managed to maintain its position and controls about 2/3 of the American salty snack market. Frito-Lay has versions of 11 brands of chips without artificial ingredients, including those sold in organic grocery stores. Other products positioned as healthy foods are also showing good results: hummus and guacamole tortilla sauce produced by Sabra (this business was acquired in 2006), Naked Cold-Press Juices premium juices and Pure Leaf Tea House Collection teas (produced since 2016) .

/ Wathiq Khuzaie / Getty Images

The return of Pepsi

However, PepsiCo will "double down" on marketing carbonated drinks such as Pepsi and Gatorade after focusing on healthy options in 2017, The Drum reports. In the fourth quarter of last year, sales of beverages in the United States, which account for a third of the business, fell by 3%. The change in priorities is visible in advertising during one of the most notable events - the final match for the championship of the National Football League of the United States. Last year, the company surprised the media by focusing on advertising its Lifewtr premium water. This year she promoted the brands Pepsi, Mountain Dew and Doritos. Those brands will be positioned in stores to be more visible, CFO Johnson said.

Laguarta said he intends to accelerate the company's growth and achieve its stated goal of selling everyday food products (in which category PepsiCo includes "dairy products, products containing whole grains, fruits and vegetables, proteins and products that help maintain hydration") should increase by 2025 at a faster rate than the rest of the company’s product range, writes WSJ. In a recent video presentation to employees, Laguarta expressed hope that a company that is growing at 2% to 2.5% annually can grow at 5%. “The future won't be easy,” he says, referring to regulators, competition and the increased costs required for growth. “Innovation will be the key to it.”

Ramon Laguarta at the St. Petersburg International Economic Forum 2015 / PepsiCo

Expansion into Russia

Laguarta speaks English, Spanish, French, German, Greek and, of course, Catalan. He was born in Barcelona in 1963. He received a bachelor's degree in management from ESADE Business School in Barcelona and a master's degree in international management from the American Thunderbird School of Global Management. He started his career at Volkswagen, as stated on the PepsiCo website, and in 1987–1992. worked for Chupa Chups (as the Ara newspaper proudly notes, this brand comes from Barcelona). He was responsible for business development in the Middle and Far East, and in 1992 he became CEO of Chupa Chups in the USA.

PepsiCo Inc.

Beverage and food manufacturer
Shareholders (Thomson Reuters data): almost all shares are freely floated, the largest investors are Vanguard Group (8.2%), Blackrock (4.5%). Capitalization - $159.6 billion. Financial indicators (first half of the fiscal year ended June 16, 2018): revenue - $28.7 billion, net profit - $3.2 billion. Founded in 1965 with the merger of Pepsi-Cola and Frito -Lay. Major brands are Pepsi-Cola (carbonated and still drinks), Tropicana (juices), Quaker (cereals and cereals), Frito-Lay (snacks), Gatorade (sports drinks). Pepsi-Cola was invented in the late 1890s by Caleb Bradham, an American pharmacist from New Bern, North Carolina.

Laguarta has been with PepsiCo since 1996, where he started as vice president of snacks marketing in Spain. He had to move more than once. He was the CEO of the snack divisions PepsiCo Iberia Snacks, PepsiCo Greece Snacks and by 2008 he had risen to president of PepsiCo Eastern Europe. Largely thanks to his efforts at that time, PepsiCo made its largest acquisition outside the United States: it bought Wimm-Bill-Dann, according to the company's website. PepsiCo paid $5.4 billion for Wimm-Bill-Dann in 2010, making its second-largest M&A deal since its 2001 purchase of Quaker Oats. Former Wimm-Bill-Dann shareholder David Yakobashvili has known Ramon Laguarta since the time of the Wimm-Bill-Dann sale and still maintains a relationship. Laguarta's team oversaw the deal. “It was a professional, well-coordinated effort,” he recalls. Then due diligence was carried out in record time - in just 10 days; usually the procedure lasts several months, especially in large companies. This is thanks to Laguarta, he says.

Having mastered the production of juices in America, PepsiCo and Coca-Cola began to compete for the opportunity to produce juices in other profitable markets, particularly in Russia. In 2005, Coca-Cola bought St. Petersburg Multon (Dobry, Rich, Nico brands) for $500 million. PepsiCo acquired Lebedyansky for $2 billion in 2009. The following year, Coca-Cola acquired the fourth largest juice producer in Russia, Nidan (My Family, Yes!, Champion, Caprice) for $276 million. And PepsiCo made a counter move with Wimm-Bill-Dann.

Russia has become PepsiCo's largest market outside the United States, bringing in annual revenues of about $5 billion, WSJ calculated. If we take only “healthy” products, then before this deal PepsiCo sold them for $10 billion, Russian assets added about another $3 billion, and by 2020 the company should reach a goal of $30 billion.

Centerview Partners investment banker Blair Effron, who worked with Laguarta on the Russia deal, assured the WSJ that he has a “global vision”: “He will be a very strong leader.”

Lesson for Laguarta

In 2012, Laguarta became President of Emerging and Growth Markets Europe (including Russia, Ukraine, other CIS countries, Poland and Central Europe, Turkey and the Balkans). And in 2015, he was appointed first as CEO of PepsiCo Europe, and then as CEO for Europe and Central Africa.

An important lesson comes from this time, says WSJ. In 2012, PepsiCo formed a joint venture with the German company Theo Muller and attempted to sell yogurts in the United States. When Laguarta became responsible for all of Europe, it became clear that this project had failed. Four years after its opening, it was liquidated. Before taking on an ambitious task, it is necessary to test it on a smaller-scale project, the future CEO of PepsiCo concluded. The company will continue to expand its range in an attempt to meet changing consumer tastes. “But we need to think carefully before entering new areas where we may not be as competent as in our core products,” he was quoted as saying by the WSJ. – We conduct many experiments around the world. If we see that they have worked somewhere, then we scale it up.”

Ekaterina Burlakova participated in the preparation of the article