What's Good For You Is Good For PepsiCo: Ex-CEO Tells How That Happened

For the first five years or so of Indra Nooyi's tenure as CEO of PepsiCo, she was not a favorite of the investment or press communities. Then things changed.

Why?

Because Nooyi remained rooted in her convictions. She stayed focused on the journey she set out for PepsiCo and the company started to deliver. PepsiCo had adopted environmental, social and governance (ESG) goals long before anyone knew what they were, Nooyi said.

"If I got fired for my convictions, was that bad? No, because they were good convictions," she told the invitation-only audience at Amazon Business' Reshape 2022 conference at the Hyatt Regency Resort and Spa on Wednesday.

Speaking during the opening session of the two-day event, which is focused on businesses utilizing Amazon's business services, Nooyi delved into a number of subjects with Aster Angagaw, vice president of commercial, public and strategic sectors for Amazon Business. Nooyi, who retired from PepsiCo in 2019 after 24 years with the company, 12 as CEO, and now sits on the boards of Phillips and Amazon, spent the first half of her conversation detailing the journey she led PepsiCo on as it transitioned into a company that offered "good-for-you" products rather than just "fun-for-you" products. The transition didn't sit well with some.

Nooyi took over as CEO of PepsiCo PEP in 2006 following a stint as president. Many new CEOs, she said, come into the job and immediately change things.

"I wasn't running to be CEO," she said. "When you become CEO, you say everything the previous guy did was wrong. The book says you have to crash the financials … until you run out of [runway]."

That strategy, though, was not the correct one for PepsiCo. For starters, Nooyi said it was difficult to say everything the previous leadership had done was wrong since she was part of it. But, she recognized that PepsiCo needed to change.

"I started to look at the big trends impacting the business," Nooyi said, noting that consumers were shifting to more health and wellness products, ditching sugar-filled drinks in favor of diet drinks and water.

"We had to change our portfolio because the consumer was going to a different place," she said.

At the same time, PepsiCo and other big corporations were facing increasing pressure from politicians along the East Coast concerned about the amount of plastic showing up on shores. In addition, water, which was a key ingredient for many of PepsiCo's products, needed to be conserved. It took 2 ½ liters of water to produce 1 liter of product, she said.

"We had to reduce our water consumption drastically; we had to reduce our plastics," Nooyi said.

And there was another problem starting to show itself at the company — the ability to attract new employees was dwindling. The company's image was just not good, Nooyi said.

"We had to shift our portfolio from fun for you to good for you," she said, noting that the goal was to shift PepsiCo's image and philosophy to attract new customers and employees, and still do good for the world. PepsiCo, she said, needed to have "performance with purpose."

So Nooyi refocused PepsiCo with a purpose in mind. It reduced the amount of fat, sugar and salt in its fun-for-you products, and invested in creating more healthful products.

"Our investors were not [impressed] because they were focused on the quarter," Nooyi said. "I had to take three to four years of, pardon my French, total s— from the investors."

Nooyi said the changes were important to keep feeding the growth engine that is PepsiCo, but it wasn't easy. She started with the Frito-Lay division, which she said was the company's "most difficult" division at the time. Nooyi traveled to Plano, Texas, and presented her vision to Frito-Lay's leadership. Within days, they were on board with the plan, and Nooyi knew the vision would succeed.

But even after that, there were both internal and external challenges along the way. Nooyi cited a couple of examples, including the change to heart-healthy sunflower oil for Lay's potato chips.

"So we launched Lay's with sunflower oil and within weeks we were getting complaints," she said. "What are you doing? The product tastes awful."

The customer did not like it, so PepsiCo made the choice to remove the mention of sunflower oil from the packaging. Almost immediately, the complaints subsided.

A similar situation took place with Sun Chips. In that case, PepsiCo redesigned the packaging with a focus on compostable packaging — if the package was thrown on the side of the road, it would disintegrate into the ground, leaving no trace. Again, though, the public had strong opinions. While the product itself didn't change, the new packaging was noisier than the previous packaging and sales dropped.

The old packaging was restored and the customers returned.

It is a balancing act on doing right and satisfying customers, but it is also about getting buy-in from employees.

"People don't want to compromise on anything," Nooyi said, adding that to "future-proof a company, it's very hard to get people on board."

"When I took over PepsiCo, I said CEOs may come and CEOs may go, but the company needs to go on forever. CEOs need to run the company to go on forever," she said.