Six years after PepsiCo tried to capitalize on the trend toward healthier snacks, the company has hedged that bet by bolstering its position as a junk food leader.
The company shook up its management team earlier this week, elevating John Compton, who ran Frito-Lay and the company's other US-based food businesses, to the new job of president. The company also convinced Brian Cornell, a PepsiCo veteran, to return to the company to take over Compton's job. Cornell had been leading the Sam's Club division of Wal-Mart.
PepsiCo announced last month it would spend up to $600 million on marketing with an emphasis on its core brands, which include Doritos, Gatorade, Tropicana, and Quaker Oats. More recently, it announced a plan to introduce Dorito-shelled tacos at Taco Bell, the fast food chain that PepsiCo spun off in 1997. And just yesterday, PepsiCo revealed plans for its biggest launch in years with the debut of Pepsi Next, a soda made with a blend of artificial sweeteners and high fructose corn syrup, later this month.
The changes put PepsiCo CEO Indra Nooyi in a position where she can quickly shift one way or the other, or possibly leave for another opportunity, according to a report in The New York Times. "A CEO in this position has to be a remarkable person with great vision and the foresight to proactively change the company, yet in the short term take some hits because the path getting from here to there is not straightforward," Rajiv Lal, a professor at Harvard Business School, told the paper.
Just why the company made the moves is a matter of speculation. Perhaps internal analytics showed a shift in market tastes. Or perhaps Nooyi is simply buying time with impatient shareholders while considering other career options; the NYT noted she's been rumored to be a candidate to lead the World Bank.
Nooyi is well known for her long-term conviction that the company's future depends on selling healthier foods. She created a new position of senior vice president of global health and agricultural policy, and recruited Derek Yach from the World Health Organization to fill it. She also diverted $20 million away from a Super Bowl ad to grants for charities identified through a Facebook campaign called Pepsi Refresh. And she oversaw the launch of Sun Chips, a healthier alternative to the company's more famous chip products.
An unhealthy stock
While the healthy moves have generated good press, they did little to support the company's stock price, which closed six cents higher on Tuesday at $64.40, about where it was five years ago and well below its 52-week high of $71.89 last May. To be fair, Coca-Cola shares haven't fared much better. They've risen from the high 50s to the low 60s over the same time frame, also trading well below their one-year high. But Wall Street analysts have thinly veiled disappointment with PepsiCo's performance.
"PepsiCo has been underinvesting in their core businesses, but the damage hasn't been permanent and the plans they have to address it should work," analyst Ali Dibadj of Sanford C. Bernstein & Co. told the NYT. "I think [CEO Nooyi has] saved her neck for a year, but they had better really start delivering."
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