Pepsi Gets Back In The Game

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In the aisles, the new PepsiCo is trying to combine sodas and snacks in lavish displays at supermarkets and convenience stores. In targeting consumers, what Pepsi calls the "Power of One" makes perfect sense: it's all about making sure that everybody who buys a salty bag of Tostitos or Lay's potato chips has to think twice before passing up that thirst-quenching bottle of Pepsi or Mountain Dew across the aisle.

In the back offices of supermarkets and discount stores, Pepsi is waging another kind of war, pitching itself not just as a supplier but also as a partner in a highly competitive business. Combined, Pepsi, Frito-Lay and Tropicana account for $11 billion in retail sales at supermarkets--hefty numbers that Coke can't match. "We represent up to 13% of their profits," says PepsiCo's new senior vice president for sales and marketing, Al Carey. Last month Carey accompanied Enrico and the presidents of Pepsi, Frito and Tropicana on a historic first joint call on a major retailer to remind the customer of those figures.

For Enrico, the re-engineering of PepsiCo could be the crowning achievement of a career filled with magic acts. The 54-year-old chairman started as an associate product manager for Frito-Lay and became president of Pepsi-Cola at 39. In the 1980s he became famous as the cola warrior who beat Coke and bragged about it. As its president in the 1990s he rejuvenated Frito-Lay. Then he turned around the restaurant division before deciding it was too expensive to keep. "Nobody can bulls___ Roger, because he knows every one of our businesses cold," says Indra Nooyi, the company's chief strategist. Enrico has spent a long time picking those businesses apart and relearning them, in order to completely reshape them.

What Enrico discovered was that forging a new PepsiCo meant changing a corporate culture that was in love with itself. Pepsi has always attracted some of America's hottest executive talent, and it let these managers run their businesses. In a world where scale matters, such freedom has a price. "Frankly, we had a long-standing culture of autonomous business units," says Frito-Lay CEO Steve Reinemund. So while managers were ricocheting off each other in search of their next promotion, or chasing new restaurant chains or joint ventures in far-flung parts of the world, Coke stuck with the game it knew, steadily increasing the stakes along the way with billions of dollars of investment in soft drinks, nothing else. "The bet had been made, and we didn't raise or call it," says Enrico. "We didn't even play."

Enrico is not about to let the company's egos get ahead of its capabilities again. "I started out here [as CEO] with a sense of the limitations, not just opportunities," he muses. He put a stop to the management churn by recentralizing control and altering compensation schemes, offering incentives to managers to get the job done, not just look for the next one. Says Enrico: "I want to make sure that we walk the talk around here, not just on philosophy, but on implementation."

The stiffest test for that culture may be in its overseas operations. Not four months after he took over the top job, his largest bottler in Venezuela--run by an old friend--defected to Coke. It was the most public failure of what what insiders referred to as the "$5 billion house of cards," Pepsi-Cola International. PCI's ambitious, much publicized campaign to stake claims everywhere from Moscow hospitals to Burma came undone in a cascade of bankrupt joint-venture bottling partners and questionable acquisitions that took Pepsi into dozens of businesses that had nothing to do with cola. The result in 1995, for instance: Coke made $3.5 billion overseas; Pepsi had an operating loss of $652 million.

Enrico and his lieutenants learned two lessons from the PCI debacle. One was that the business had to be simplified. The other was that no single manager was hot enough to run his or her operation without full disclosure. "This is about boring consistency," says Peter Thompson, who took over PCI in 1996. "We've moved from individual heroics and silver-bullet management to building capable teams." Thompson is reconstructing the 18,000-employee international operation "brick by brick."

The strategy is beginning to get results. More Pepsi was sold overseas last year than in the U.S., and volumes are growing steadily--faster in 1999 than Coke's.

Pepsi hopes to make its greatest gains in the U.S. this summer, when it unleashes a marketing blitz tied to the Star Wars prequel The Phantom Menace. Pepsi will spend around $2 billion exercising its exclusive boasting rights to America's favorite slice of fantasyland. There will be collectible Pepsi cans emblazoned with Star Wars characters and gold "Yoda" cans of Mountain Dew, not to mention surprises in bags of Frito snacks.