About six months after taking over as the chairman and CEO of PepsiCo India, Manu Anand is putting together a new manufacturing and distribution business model to address the needs of the mass segment. Anand admits it is a “learning process” as he elaborates on the company’s strategy in both beverages as well as foods business. Excerpts from an interview with Surajeet Das Gupta & Priyanka Singh
Do you see the slowdown impacting your business in India?
We sell indulgence products with prices ranging from Rs 5 to Rs 20. Such products are not typically cut back by consumers too fast or too quickly. May be the frequency of the consumption comes down. So we are not worried.
In the last few months, Pepsico India has been under pricing pressure due to increase in raw material costs. Going forward, do you see margins getting squeezed?
Yes we have been challenged by inflation and have increased prices even though it is the last resort. We have done various things to reduce costs- light-weighting of bottles, downsizing of packages and using bio mass for fuel to save costs.
There was a lot of stress in the bottom of the pyramid market and concerns about introducing products at below Rs 5 price points.
What are the challenges in that space?
We clearly see what they call the next billion as the new potential large consumption opportunity for our products. The challenge is about building the appropriate product at an appropriate price point based on an appropriate business model. From the product side, we are trying to look at beverages at Rs 5 price point.
We test marketed a product called ‘Glucoplus’ in Maharashtra through our joint venture with the Tatas. The insight was that when you are going for a below the pyramid product, it has to be at the right price point, it has to be fun and indulgent but will also deal with some functionality. Glucoplus provides the right hydration salts because this is for people who really work hard and sweat hard the whole day.
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But won’t such products need a different business model to sustain the lower price?
Yes. We are looking at dispersed manufacturing for these products so that you take a lot of freight cost out of the system by keeping manufacturing close to the consumption points. Also we will look for lower-cost distribution models. These need not ride the same beverage truck or same foods van that we currently have, but things that are more geared towards numeric distribution. For example, if they made 20 calls a day to the retailer earlier, they will make 40 calls a day now. These products may not find their way into the cooler; we might just use ice chests.
Can you elaborate on the new distribution model.
Currently food or beverage distribution is geared to calling on larger accounts where there are coolers. We spend a lot of time on these accounts, charging the coolers, taking the order, merchandising etc. So while the numbers of calls they make to a retailer a day are less, they get higher throughputs per call. The kind of products that we have for the bottom of the pyramid market is more geared for wide numeric distribution and low merchandising intensity. So, if it’s a food product, you should be just able to hang it in front of the store. Today we are in 1.5 million touch points, but the total retail outlets in the country are 8 million, so there is a long distance to go.
A lot of people are looking at delivery of water. But what about the challenge of getting water to the bottom of the pyramid market?
There are some products in the pipeline which Nourishco (PepsiCo-Tata JV) is working on. Very soon you will be hearing about those.
Pepsi had launched Max in a very big way. But you withdrew it from the market. What went wrong?
We launched Max in Delhi only. I think what we all are learning is that the zero-sugar market in India is very nascent as the per capita consumption is very low. Consumers do voice sugar as one of their concerns from time to time. But when it comes to choices, they still prefer the taste of full sugar products.
While you are working on various new products for the mass segment, your core beverages are still not available at Rs 5 and below price point.
The economics of the beverages business makes it difficult to sustain these kinds of products at Rs 5. We were not able to sustain that 8-10 years ago; we can’t do it now because of the cost structure. It’s a virtual impossibility.
You will not look at powdered format?
We will look at any option that makes sense to consumers. We have Gatorade in powdered format already.
The seasonality of the industry can be killing as the business of beverages is only for a few months. Do foods help in reducing that danger?
By being diversified, it has certainly smoothened some of the curve but unfortunately the assets that are on the ground for beverage business can’t be utilized for foods business. So they remain underutilised in the off-season months. However, the financial numbers get a bit smoothened because of two different businesses in India. The good sign is that of late I can see consumers’ habits also beginning to change with more take-home consumption starting.
What about your foray into dairy where PepsiCo is becoming a big player?
We don’t have any immediate dairy plans for India.
Can India become a hub for you in developing products and innovations?
India will be an important source of ideas and innovations. We have already got an R&D centre in India focusing primarily on R&D of Indian products, though some of its ideas and work are finding their way into other countries. We are also in the process of setting up an innovation center in India to take up certain key projects. Use good old Indian innovation — jugaad —to innovate.