PepsiCo Urges Industry to Focus on ‘Speed’ to Spur Growth
By John Karolefski

The food industry needs to speed up the way it collects data, develops products, reduces days of inventory, and deals with the convergence of online and in-store shopping. To make that happen, trading partners need to collaborate to serve shoppers better in today’s digital age.

That’s the message that John Compton, chief executive officer, PepsiCo Americas Foods and Global Snacks Group, issued to grocery retailers and fellow CPG manufacturers.    

“Speed will be a future currency for growth and profitability. It requires us to re-think old habits and to embrace the speed at which the world is changing. It requires us to collaborate to use our collective resources in a way in which we can build demand for our products and loyalty with our shoppers,” he said in a presentation recently at the Food Marketing Institute (FMI) Midwinter Executive Conference in Orlando.  

“We have to challenge ourselves to rethink our approach to insights, to innovation and to our in-store experience. Incremental change is not going to work. All of us need to act boldly and think fast,” he said. 

Compton said about $10 billion is spent on insights across multiple industries, including half spent on collecting and analyzing data. 

“In our industry, the transaction cost alone of buying and selling data is over $5 billion. Do we really need to spend all that money on data when it’s two and three weeks old?  Surely there is a better way. In traditional businesses like ours, we should share information. We can get a competitive advantage by the way we interpret that information.”

Compton called on the industry to repurpose the money spent on data to be used to provide for consumer and shopper needs. Shared data can be used in real time to serve shoppers better store wide and to build demand.  

Better insights can lead to more innovation in the form of blockbuster new products, he claimed, lamenting that the shrinking Center Store of supermarkets is home to too many new SKUs that are mostly “cannibalistic line extensions.
We are being challenged to bring you innovation that drives category incrementality. Many of you want innovation that differentiates you from your competing retailers. We can change these trends of innovation. We just have to act fast,”
he said. 

Speed was a recurring theme in Compton’s comments, including how fast shoppers can research and buy products with smartphones and computers compared with traditional shopping in stores. Some 15 million shoppers are using RedLaser for price comparisons among nearby stores, he said, while 25% of shoppers are now going to retailer websites before making shopping decisions.   

“Some of you are saying those {purchases} are not happening to our industry,” he said to the audience of food executives. “But many of you know that’s not true. Just look at the success Amazon is already having building relationships with your customers. It’s estimated that by 2015, 20% of all diapers sold will be sold online. Is it unreasonable to assume that you can build a relationship with someone buying diapers, but don’t care about other home-care products? Would it be ridiculous to assume that they could also buy a case of Pepsi?”

To illustrate the power of digital shopping, Compton used the example of Tesco Home Plus, a supermarket chain in Korea. To save shoppers time spent grocery shopping, Tesco set up virtual grocery stores in locations like subway/metro stations. People can literally do their grocery shopping while waiting for the train. Pictured on the walls are posters that resemble supermarket aisles and shelves stocked with products. Each has a QR code that the shopper can scan with a smartphone camera and add to a shopping list. After “shopping,” the customer pays using his phone and groceries are then delivered to the home.

“I don’t know if Tesco’s experiment will come to the U.S. or not,” said Compton, “but I have accepted this fact: the convergence of online and in store is happening at a much faster pace than many in this room are willing to accept.”

He pointed out that the food industry is still operating with 60-plus days of inventory. Every day of inventory taken out of the system is at least a $30 billion benefit. Take out 10 days: $300 billion; take out 30 days: a billion dollars of system costs.

“Can we imagine a supply chain with 7 to 10 days of inventory, not 60?” he asked. “I know we can’t get there tomorrow or next year or five years from today. But can’t we start to paint that vision? Can’t we start to think about how to reset shelves in a more virtual basis instead of once a year? Can’t we use that freed-up cash flow to make the shopping experience more interactive?”

Compton said his vision has been validated by a new report from consulting firm Accenture in conjunction with FMI. There is more than $100 billion of tracked value in the food industry right now, the report found. 

“Retailers, manufacturers and suppliers need to come together in a value chain to unlock that benefit and generate real growth for our industry,” he said. “We have a chance together to change this industry for the long term. I personally believe that collaboration is going to become a competitive advantage. We just have to move with speed and act fast.”

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                                                                               March 2012
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