Fast Break
Pepsi Bottling Group CEO Eric Foss nurtures people — and performance — in a fast moving industry where every play counts.
Evan Kafka
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E-mailComparing the beverage distribution industry to the game of basketball, Eric Foss, chairman and CEO of The Pepsi Bottling Group Inc. (PBG), says, “The business is fast-paced, with little or no time between plays.” Like a champion-caliber team, he says, PBG “relies on strength — size and scale — and the speed of getting to market.”
As the world’s largest bottler and distributor of PepsiCo Inc. (PEP) beverage products, PBG reports that it produces, packages, warehouses and ultimately distributes the equivalent of 85 billion beverage servings a year. Yet the cartons of Pepsi, Mountain Dew, Lipton Iced Tea, SoBe Lifewater and roughly 30 other beverage brands that PBG packs into its 20,000 delivery vehicles in the U.S. each day tell only part of the story, Foss insists. “People think we’re in the beverage business,” he shrugs. But as with basketball, which relies upon the skills of the players on the court, “we’re really in the people business.” He adds that the efficiency and effectiveness of the supply chain are critical, and that it is PBG’s team performance that determines success.
Foss says it’s the company’s employees who have been the biggest driver of PBG’s success over the past 10 years (on March 31, PBG celebrated the 10th anniversary of its IPO). Since listing on the NYSE, the company has nearly doubled its annual revenues — from $7.5 billion to approximately $14 billion. The company reports that its workforce has grown to about 67,000, from 37,000 in 1999. And PBG points out that it has built a consistent track record of delivering strong financial results and creating shareholder value: PBG has reported double-digit earnings-per-share growth in nine of the 10 years since becoming an independent company.
Foss says his biggest job as part of the team is to set a straightforward, top-level strategy for employees. That approach, he explains, includes meticulous execution of the details of the bottling business, such as using every possible inch of a warehouse’s storage space, shaving a few pennies off the cost of producing a case of soda and reducing the time needed to make a sales call. “One key to success in this business is an ability to take the complex and make it simple,” says Foss, who joined the Pepsi system 27 years ago as a marketing grad from Ball State University. He rose through the ranks, staying with the bottling side of the business when it was spun off from PepsiCo in 1999. Foss moved into the COO spot in 2005 and was named PBG’s CEO a year later.
The Pepsi Bottling Group Inc. (PBG)
Somers, N.Y.
2008 Sales $13.8 billion
2008 Comparable Net Income $500 million
Market Cap (as of 3/26/09) $4.7 billion
Countries of Operation 7
Listing Date 3/31/99
Employees 67,000
“A leader I admire is John Wooden, former UCLA basketball coach, who won 10 National Championships. His focus on preparation and practice, along with his courage, character and coaching skills, made him great.” — Eric Foss, Chairman and CEO
From Bodegas To Superstores
The strategy of keeping it simple is especially important now, as consumers reduce spending and some retailers are struggling, says Foss. The company says it distributes beverages in 41 U.S. states and six foreign countries (Canada, Greece, Mexico, Russia, Spain and Turkey); its retailers vary in size from neighborhood bodegas to Wal-Mart Stores Inc. (WMT). Reaching such a diverse customer base profitably during a downturn means “having the right revenue- and margin-management strategy,” says Foss, 50. “It means being focused and disciplined in terms of costs and working capital” and closely evaluating counterparty risk, he adds. “You can’t predict, but you can prepare.”
Another driver of PBG’s success since its spin-off from PepsiCo has been the repositioning of its brand portfolio. For example, the company has expanded its product lineup in categories favored by younger consumers, including the “hydration market,” with brands such as Aquafina and Gatorade, and the “invigoration market,” with brands such as AMP Energy and SoBe Adrenaline Rush. PBG also recently announced that it will distribute ROCKSTAR, the third largest energy-drink brand in the U.S. Notwithstanding PBG’s “We sell soda” mission statement, noncarbonated beverages now account for 27 percent of the company’s U.S. brand mix, up from 10 percent in 1999, and should reach more than 35 percent by 2012.
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At the same time, PBG says, it has successfully repositioned its geographic portfolio. In 1999, less than 20 percent of the company’s volume was generated outside the U.S. Today about 40 percent of volume comes from non-U.S. markets, says Foss.
Although Foss says that the beverage business began slowing in the second half of 2008, PBG was able to deliver a solid year. The company reported sales of $13.8 billion, which was 1.5 percent above the previous year, while net income declined 2 percent, on a comparable basis, to $500 million. Despite the macroeconomic headwinds in 2008, PBG reported 2 percent operating-profit growth and 3 percent earnings-per-share growth. One of the reasons the company has been able to effectively manage through the downturn is its ability to appropriately prepare, says Foss. Last November, he notes, PBG launched Structured to Succeed, a multiyear cost-savings program that it had begun developing earlier in the year to right-size the company’s workforce, enhance operational efficiencies across geographies and improve customer service.
