PepsiCo has announced internally a significant restructuring of its U.S. beverage business to boost performance. According to sources close to the plan, the former North America Beverages (NAB) unit has been realigned into four U.S. regional divisions – North, South, Central and West – and a single Canada division. Each division’s leadership and operational staff will “own” the P&L, sales plans and execution, according to an internal PepsiCo memo distributed to employees today that was obtained by BD. The newly-named PepsiCo Beverages North America (PBNA) organization is intended to bring PepsiCo’s domestic beverage business “even closer to the consumers, customers, franchise partners and communities where we operate,” the memo said. “Our locally tailored plans will be executed by an organization of world-class, empowered colleagues who are unapologetically proud of what we do and what we sell.” The memo further states that the new structure will “simplify the way we work, remove red tape and push decision-making and resources into the market.” PepsiCo-owned bottling operations will be integrated into the regional divisions, a source said. A headquarters function called the “Sector” will support the U.S. regions and Canada. According to the memo, the Sector will lead brand building, leverage economies of scale, provide governance and maintain subject matter expertise. “Functional leaders in the Sector will partner closely with their counterparts in the Divisions and work as one seamless PepsiCo Beverages North America team,” the memo stated. The Sector also will “serve as a connection to PepsiCo corporate to ensure alignment between the business and the enterprise,” the memo also read. As one PepsiCo insider put it to BD,the structure is similar to that used in international markets.
Perspective. The new North America structure answers the question of U.S. refranchising for now. Investment analysts have pressured PepsiCo to follow Coke’s lead in refranchising its U.S. bottling operations, of which PepsiCo owns more than 75%. Industry watchers have debated whether CEO Ramon Laguarta, who stepped into the role in October, would take a different path than his predecessor, Indra Nooyi, who steadfastly argued that PepsiCo was better off owning its bottling network. During a conference call with investors this morning, Laguarta all but took refranchising off the table, saying such a process would be complex and disruptive. He reiterated that owning bottling operations in the U.S. offers a “competitive advantage.” Still, sources inside PepsiCo told BD that the U.S. beverages unit needs to improve its local market execution by getting closer to the action. PepsiCo has already taken a series of steps since late 2017 to improve performance of its U.S. beverage business after share losses to Coca-Cola. Work ramped up on the new structure during the second half of last year, culminating in today’s realignment. Retiring PepsiCo North America CEO Al Carey has been involved in the planning.
Bottlers. PepsiCo’s internal communications also included overtures to the company’s independent franchise bottlers, some of whom have expressed frustration in recent years with the level of support from PepsiCo. “Our franchise bottling partners are an invaluable and intrinsic part of our business,” the company wrote in the internal memo obtained by BD. “We remain committed to our franchise bottling structure.” The memo went on to say that the new structure “will facilitate an even closer relationship with our bottling partners, who will now have deeper resources at the Division and local level that will together help us serve our consumers and customers more quickly and efficiently.”
Leadership. Kirk Tanner will continue to lead the restructured North America beverage group as CEO, sources said. “We are investing in our brands and in a structure to accelerate our growth,” Tanner wrote in an email. “We are moving to a new operating model that enables us to act with speed, alignment and agility by moving resources into the market, closest to our customers, consumers, communities and franchise partners. We firmly believe that with our new operating model we will continue to improve the performance and execution of our brands both nationally and at a very granular local level.” According to the internal PepsiCo memo, Derek Lewis (SVP and GM of North America Field Operations) has been named president of the South Division, based in Orlando. Kris Licht (Northeast Region SVP) is West Division president, based in Los Angeles. Neil Pryor (chief commercial officer for PepsiCo North America) will lead the Central Division from Chicago. Rich Tompkins (chief commercial and transformation officer) is North Division president, based in White Plains, NY. Richard Glover will continue to run Canada operations. All five division leaders will report to Tanner.
Fourth-Quarter Results. PepsiCo also reported its fourth-quarter results today. It is Laguarta’s first report card since he stepped into the CEO role in October. NAB volume declined -1% in the quarter (compared to -2% in 4Q’17). Organic revenue was up +2% (-3% in 4Q’17). NAB core constant currency operating profit declined -7%. The company’s total organic revenue (not including currency adjustments and other structural changes) was up+5% while global beverage volume was little changed. The company also reset its full-year earnings guidance. In a regulatory filing, PepsiCo said it expects a $2.5 billion charge against earnings through 2023, in large part to pay for employee severance packages tied to a new multi-year cost cutting and productivity program.
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