PepsiCo is always battling its archrival in the beverage industry, the Coca-Cola Company. PepsiCo has not reached sales forecast in each of the last few quarters and are finding ways to cut costs while maintaining current sales. In a recent effort to combat the slide in soda sales, PepsiCo announced on February 8 that they are launching a colorful new seltzer product called Bubly. PepsiCo CFO revealed in an earnings call earlier this year that Pepsi wished that it got Bubly to market sooner in order to capitalize on the fast-growing seltzer beverage market. PepsiCo will need Bubly to reinvigorate its North American beverage unit, whose profit dropped 10% last quarter. The sales on its new product, Bubly were below projections which lead to excessive holding costs, which further ate into North American profit numbers. The company blamed disappointing results on cooler summer weather and too much marketing focus on healthier brands.
In regards to Pepsi’s cost cutting program they are eliminating up to 1% of corporate positions in North America and giving bonuses to sales and operations managers who successfully sell product and get it into customer’s hands. They are also looking into closing more manufacturing facilities and investing in automation in its current factories. Pepsi also plans on hiring up to 20,000 front-line workers, which is does annually.
Pepsi is having a difficult time with its own sales and operations planning (S&OP) because it is trying to expand its product line in a growing market while the remainder of its business units are underperforming projections and have had declining revenues in each of the last two quarters. They are using savings and debt to finance its new operations, but with interest rate hikes on the horizon, it is putting pressure on these new units to perform. For a mature company like PepsiCo, it is unusual for the company to have problems forecasting demand/sales for its product. Part of the reason for the failure in Pepsi’s S&OP could be from the increased volatility in levels of demand and adjustment to supply levels by Pepsi. PepsiCo might need to more efficiently market its products according to an ABC classification system that prioritizes its main products while giving products in growth markets a different level of priority, and its other products another level of priority. Pepsi will need more agility, strategic focus, and control in order to be proactive versus reactive in its S&OP.
How do you think demand for PepsiCo beverages will change in the future and how could PepsiCo more accurately forecast the changing demand?
What ideas do you think PepsiCo should use in it S&OP to get ahead of the market (i.e. ABC classification, etc.?