BOCA RATON, FLA. — It is no secret many of the largest consumer packaged goods companies see the snack space as a lucrative target. Once its acquisition of Snyder’s-Lance is complete snacks will make up a significant portion of the Campbell Soup Co.’s sales. The Kellogg Co. has spent the past few years shifting its focus away from the morning daypart to snacks, and the Hershey Co. is extending its reach in the category with the acquisition of Amplify Snack Brands.
While other companies are expanding in the category, PepsiCo, Inc., through its Frito-Lay North America business unit, is focused on remaining a dominant player.
“Of course I’m concerned when others get into the marketplace,” said Vivek Sankaran, president and chief operating officer of Frito-Lay North America, Feb. 21 during a presentation at the Consumer Analyst of New York conference in Boca Raton, Fla. “But we’ve competed with all of these players before. So, nobody here is new, right? We have a good sense for how to play in this market.”
He added that based on its history and recent performance the business unit is in a “good place.”
“We have a great portfolio of brands, great relationships with consumers and customers, an incredibly effective supply chain and D.S.D. workforce, and robust cost management,” Mr. Sankaran said.
From a financial perspective, in fiscal 2017 the business unit contributed a quarter of PepsiCo’s total net revenues and 42% of its operating profit. The numbers are consistent with Frito-Lay’s performance in fiscal 2016.
“ … We are pleased to play a role, and a big role, in driving PepsiCo’s growth and profitability,” Mr. Sankaran said.
Future success for Frito-Lay North America will continue to revolve around product innovation, marketing execution and continual improvements to the businesses internal operations.
“Despite our capabilities today, we believe we have another S-curve of performance with advances in technology in D.S.D.,” Mr. Sankaran said. “With the data we are collecting and the digital capabilities we are enabling for the frontline, we believe we can further improve how we plan our business, segment customers and stores and integrate in-store and online, enable on-device activation so that our consumers can find the right Frito-Lay product at the right time in the right store.
“For example, we are vastly improving our ordering algorithms to automatically generate the perfect order for that store based on sales histories, counter trends and inventories. We are investing in closed loop technologies that allow managers to assign specific tasks and close the loop on timeliness and quality of execution. We are deploying new label models that allow for more specialization of tasks yet to ensure integration across those tasks, further improving execution and reducing costs.”
Automation is a key element to reducing costs. Frito-Lay North America has installed robotic truck loaders and automatic pickers for individual small bags in some of its plants to fully automate mixed cases sent to small-format stores.
“This is something we never thought possible five years ago,” Mr. Sankaran said. “At the same time, we’re investing in digital capabilities for our frontline to enable better execution of custom assortment and displays at a very granular store level. We have an app called Store Facts on Demand. We can walk into a store and see immediately detailed trends at the outlet level and the store level for pack, flavor or brand, all of it, which is updated daily.”
Adding e-commerce to the equation
E-commerce makes up approximately $1 billion of PepsiCo’s annualized sales. The company began investing in the space three years ago by hiring “tech company-like talent,” Mr. Sankaran said.
“Our business is robust with both our brick-and-mortar e-commerce partners and with our pure-play partners,” he said. “Though as you know, that line is blurring fast. We do the basics well such as search, content, digital marketing, tweaking our supply chain to sell our everyday portfolio on this channel. But we’re also pushing the envelope in many ways. We have been most pleased about how e-commerce has helped our overall brand building. This is true with our co-brands, where we’ve been able to do programs with brands like Cheetos.”
The breadth of PepsiCo’s product portfolio also is proving to be a strength in e-commerce.
“Using data and analytics, we have also been able to highlight relevant and contextual affinities online,” Mr. Sankaran said. “So if someone buys a Sabra hummus online, suggesting that they add Stacy’s Pita Chips to that order has been effective. If you think about it, the friction of having to walk to another part of the aisle — store and search for an affinity product is completely gone in commerce, and that’s working to our advantage. Net-net, we’re very pleased with our e-commerce and Frito-Lay, in particular. We doubled the business last year. We’ll double it again this year.”
