“This is a major correction,” says White. “I do not believe we are going back to ‘normal’ times for the foreseeable future.”
Consumers have been hard hit, having experienced what White calls a “massive wealth contraction” driven by losses in the stock markets, a sharp drop in home values, and rising unemployment.
“We are now seeing a major correction in both the consumer’s psyche and behavior,” he says. “The consumer is looking for value, and I think there is a new frugality mindset.”
For consumer product businesses, this means working harder to provide value to customers. “And value doesn’t have to mean price,” he says. “It can be about features and quality. But value is crucial.”
White recognizes that every company today needs to be focused and disciplined about its spending and operations. “In this environment, where consumer demand is weak, competition is fierce, and profit margins are under pressure, you have to scrutinize every area of the business — everyone and everything has to stand up to disciplined evaluation in the interest of efficiency.”
At the same time, he says, “you’re not going to save your way to growth. You’ve got to invest your way there.” He emphasizes the importance of continuing to make disciplined, targeted investments in critical areas such as brand-building, research and development, technology, and leadership development.
According to White, PepsiCo’s business model provides a strategic advantage in challenging markets. For instance, PepsiCo offers a direct-store delivery approach, in which the company manages a product from order to store shelf, minimizing handling and costs for the retailer. “With this model, the retailer receives cash before we do, which means our model is a cash generator for retailers,” says White. “They may make a higher margin on a private label, but very often our business model generates better cash flow. That’s important in this environment, and we are sure to remind the retailers of that.”
Difficult markets also increase the challenges of managing talent. There is the continual challenge of developing the next generation of leaders at PepsiCo, but also the new challenge of leading and motivating people during difficult times.
White believes the new generation joining the workforce — the so-called ‘Millennials’ — are quite different from the previous generation. “They’re more tech-savvy than we are. I think they have better collaboration skills,” he says. “They want meaning from work, beyond the usual rewards. And they have a higher standard when it comes to work-life balance.”
For White and his fellow leaders at PepsiCo, this is a learning experience for everyone. “I think we’re doing okay on the technology part and getting better at collaboration,” he says. “Work-life balance is a challenge for us, as it is at many companies, but we’re making progress there too. I’d say the ‘Performance with Purpose’ vision for the company, articulated by our CEO Indra Nooyi, has worked very well in providing meaning to folks, and will continue to do so.”
White says it’s also important to manage people’s expectations around career movement. “If you’ve only been in the workforce for a few years, you may be used to moving very quickly from one thing to another,” he says. “Now that might not be realistic. And it might not be a great idea anyway. I think the key is to be up front with a good career development plan, be clear about what someone needs to learn in order to move on, and be committed to coaching and mentoring them through their career.”
Still, White acknowledges that there are no easy answers to the question of how to lead a large diversified consumer company in these uniquely challenging times. “I don’t know anyone who’s lived through a financial crisis of this magnitude,” he says. “The challenge is to motivate and be tough-minded at the same time. I think the key is to be a caring, genuine, ‘True-North’ type leader. People are going to follow someone they trust.”
What are the keys to future success for consumer product companies? “You always have to start with the consumer,” says White. “For a consumer products company, your unique strength has to be built around your ability to keep your brands fresh and relevant, to understand the consumer, and to have the flexibility to change and adapt as the consumer changes. And of course you have to do that while employing all the newest consumer technologies.”
Second, customer relationships are critical. “We have to work very closely with our retailing partners,” he says. “The days of dealing with a traditional buyer are well past us. The retailers want you to bring to the party a logistics expert, a finance expert, a customer marketing expert. You need the whole package if you’re going to be effective in building a business in partnership with the retailer.”
Third is operational excellence, because, as White says, “operations has become extremely complex.”
Finally, White says that consumer product companies must have a broad understanding of their responsibilities to all their stakeholders. “That encompasses issues like environmental sustainability and corporate social responsibility,” he says. “Collectively our industry recognizes that sustainability — particularly reducing energy usage and addressing water and waste issues — is extremely important. Certainly, consumers are interested in companies that are doing business in a way that they feel is ethical and responsible. So, taking responsibility in this way is a strategic priority — it’s good for business. And it’s good for the planet. I must say it has really energized the PepsiCo organization.”
First published in ConsumerCurrents issue 6.