See India as huge opportunity, to invest more: PepsiCo India

PepsiCo India, one of the country's two large soft drinks company, has invested heavily here and is likely to continue to do so.Speaking to CNBC-TV18's Shereen Bhan at the company's India headquarters in Gurugram, PepsiCo India CEO and Chairman D Shivakumar said growth for most multinational companies in India has been good.To further capitalize on this growth wave, PepsiCo has set up a huge facility in Sri City in Andhra Pradesh and expects more investments to come in, he said.

In 2013, the company had announced an investment of around USD 5.5 billion into Indian market, which is a largest investment by an MNC outside of a share buyback plan. According to him, Pepisco's agenda of transforming the product portfolio into a healthier portfolio is turning out to be a good one.

In the interview, he also spoke about the new categories that Pepsico would bring into the Indian market.Below is the transcript of D Shivakumar's interview to CNBC-TV18's Shereen Bhan.Q: 25 years for PepsiCo in India. You have got about 65 odd plants that you operate out of India. You have about eight brands that do about Rs 1,000 crore in annual retail sales. How does this market look today to you?A: 26 years actually. We started in 1989. I would say we have established a huge scale business. We are present across the country through the length and breadth. A lot of people talk about Make in India. We source in India, we make in India, we sell in India. We are one of the largest buyers of potatoes, one of the largest buyers of sugar, one of the largest buyers of rice mean, so a lot to do with the farm community, juices, etc. We actually have benefitted from sourcing from India and equally the farmer has benefitted from us both ways. Big journey, totally establishing about 22 brands. Very large scale business, second to only Hindustan Unilever in terms of number of categories we operate in. So, very successful journey and every single brand has been home grown in India. There is nothing which is acquired, it is all home grown brand.Q: Let me ask you about the demand environment and let me ask you this in the context of what you are seeing for PepsiCo globally. You have just announced your second quarter results in July. There are of course concerns as far as the global volatility goes, but on top of that, you have been able to deliver on the margins front and you have also upped your guidance for the earnings per share (EPS). How does India stack up in comparison to global growth today.A: Indian growth, typically thanks to the gross domestic product (GDP) growth, etc. for most multinational organizations tend to be good. PepsiCo has performed exceedingly well and Indra Nooyi’s performance with purpose is really going in the right direction and generating a huge buzz for society. The whole concept of being in society, doing good for society and transforming the product portfolio into a much more healthy portfolio that agenda is working well.Q: What does it all mean now in terms of future investments for India. This is of course the fastest growing economy at this point in time. What will it mean in terms of Pepsi’s plans for India going forward?A: We have announced in 2013 that we will invest about USD 5.5 into the Indian market. That is the largest investment by a multinational outside of a share buyback plan. We have already set up a huge facility in Sri City which is in Andhra Pradesh with Mr Naidu. We get enormous help there and we continue to invest in the full length of the value chain and the infrastructure. So, you will see more investment and this is a market which is a huge opportunity in the consumer goods series.Q: Speaking of opportunities and challenges, let me ask you about how PepsiCo is addressing the millennial now because this is a challenge that most companies are grappling with and it does not mean just going social or going digital or any of that. It is not just about external, it is also about internal, it is about how do you change your functioning within the organisation as well. Let us start with that from a consumer perspective. How are you dealing with the millennial generation or ‘Gen M’ as I am calling them?A: The millennial generation, an expression coined by Strauss and Howe for people born in the band 1980 to 2000, that 20 year band. Today, surprisingly, that band is the number one band in terms of consumers on population in America right now, significantly more than the baby boomers. And in India also, if you actually look at India and look at the global context, after the year 2000, one in three people born in the world is an Indian after the year 2000. So 16 years. So, we will be a very young country for a very long time. But it also produces opportunities and challenges. The first thing about very young people, they are extremely self assured, but they are also very vulnerable, they trust the word of their friends far more than they trust the word of anybody else.Q: So, traditional advertising does not work as effectively as it used to.A: Absolutely. Next, they live their lives online, they also live their commerce online, they also buy online, they return a lot, etc. they truly look for value. They are not seduced by the goods of a luxury brand, because they believe that brands need to earn their trust and is it really worth it is the question that they ask.Q: What does it mean that people are connecting more with authentic brands? What does that mean for a brand to be truly authentic?A: For a brand to be authentic the word a lot of people use is brand purpose. So, millennials want the brand of a company to have a purpose which basically means are you doing anything for society. Is there a social cause or a dimension in the way you are working behind your brands as well as your company. That is something that they really look for. Second is they look for authenticity. Does the company practice is religiously as opposed to blindly chasing profits or something else.Third they look for consistency, does the company deliver consistently day in and day out, that is what they are looking for. They are looking for purpose and in that sense what they look for are consumers and what they look for employees is actually there is a strong overlap because they don't want to work in company which don't have no social purpose. They don't want to work in a company which has joined hierarchy. They don't want to work for leaders who are not authentic and in a fast changing world both as consumers as well as employees in a VUCA world they look at stability and their biggest stability comes from family. They have lots and lots of stuff happening digitally but they look for that physical memories and relationship also. So, I am sure that the social networks are their best friends but equally they need some physical best friends also.Q: But it is also interesting because this generation is all about individualism and that is also sort of posing a challenge as far as market is concerned because I was having a conversation with Jagdish Sheth and he said within a household now you have got people making different decision when it comes to buying and what they want to buy. So, what sort of a challenges that throw up for companies like yours?A: At a consumer level yes, while they might buy individually there is a collective opinion that they all come to about a brand, about a service etc and in that sense they hunt for knowledge as a community, they might make their individual purchases. The whole concept of ownership versus sharing is something that this generation will teach us. For example if you ask young people today across the world would you like to own a car just about under 30 percent say yes, I will definitely buy a car. About 75 percent of the people are saying, why do I need a car. So, in the future world a lot of the services and products they believe can be shared and that is one way they think about sustainability very differently. That is not true of either the baby boomers or anybody else. The baby boomers wanted to own every single gadget. In the current generation they are happy to give away the gadget to have shared ownership of the gadget.Q: Absolutely and which is why you are seeing the rise of Uber and Ola and OYO Rooms and so on and so forth betting on the shared economy but how are you gearing up now to address this new consumer, how are you at Pepsi addressing generation M?A: If you look at it very simply, first is we are in the business of propagating and communicating the promise of some of our outstanding brands. So, you have a brand, you have a consumer, consumer happens to be a millennial. Classically we have relied on advertising, which is advertising on television, advertising in print etc to do that. Today most young people do not read newspaper or watch television which is not so good news for the old medium.Q: For people like us, yes.A: So, the first thing you need to do if you want to connect with the millennial generation is go to where they go in terms of the media searches. Most of the media searches is done via app or somebody is feeding it to them. So, you have to converse with them very differently. Today we are number one or number two in terms of percent of money we spend on digital in the FMCG sector in India. We spend significant amounts of money in digital. That is where - where the consumer is going we also go there. That is number one.Second is consumer engagement. Involving a consumer a lot more in what you are doing is extremely important. So, we have run a course of let us take initiatives like, crash the IPL, give us a flavour, we have done all kinds of things to involve the consumer much more. Because we find that when we involve the consumer we get far more trust and far more authenticity fed back to us. So, those are some of the initiatives that we are truly running right now, to ensure that the consumer is fully involved in our process.Q: That is as far as consumer engagement is concerned to try and draw in the consumer and build loyalty. However how is this changing for instance what you do as far as your product portfolio is concerned?A:  If you look at our product portfolio one of the things about millionaires generation is they are far more health conscious than any other generation. To them being healthy does not mean not falling sick, to them being healthy means taking good care of themselves, looking good, feeling good and having the energy to go through the day because they have I believe aspiration and stress in equal measure. They need a lot of aspiration but they also go through a lot of stress in the kind of a lifestyle they live. They are the generation which works hard and parties also very hard. I think in terms of tailoring the portfolio to them and building in the ingredients, building in the measures to ensure that our product are truly, our brands are truly far more healthy for them is extremely important.Q: That has been a journey that you have been on for a while now, I would imagine the spends are going to be higher on trying to find these alternative or create these alternative brands but what can we expect over the next few years then?A: The first thing about health which young consumers look at it is dosage. We have a range of products which come under dosage control, a bit of something as opposed to a big can or a big jar  of something. Mini cans is one clear example.Second, is a lot of the people skip breakfast in India today. Their breakfast is invariably a shake or something in the car. So, how do we ensure that we repurpose our brand to target it to these time starved consumers. Today 25 percent of Indians have breakfast on the go. What can we do get them, similar breakfast but in quick and easy to prepare manner. So, that is the portfolio shift again we are seeing. We are seeing that with success of some of our Quaker flavours that we have done which specifically targets these people like the tomato product that we have from Quaker. Young people tend to buy into a lot more of ready to eat and ready to cook than ever before but you have to do it in a timed dimension manner.Q: Which is probably why people like Nestle are now also looking at getting into the breakfast market. However in terms of new categories for instance can we expect new categories for Pepsi to get into in this market?A: We have just started creating a new category which is the Hydrotonic Drink under Revive which is for people who need body replenishment, that is something we have done. In the whole area of Quaker we are seeing new category develop there. I believe in the whole area of juices you will see many sub-categories develop. So, food and beverage market especially with the millennials  is very ripe for innovation but more ripe for what I would call premium innovation. Q: Where does this leave then the carbonated portfolio for companies like yours?A: India is a very large market and the global market itself is a huge market. There are various shades of consumers and various shades of needs, the carbonated market will continue and has been growing for some time now.Q: It is still single digit growth in India isn’t it?A: It is still very good growth compared to the base and compared to the growth that we see anywhere else it is still very strong growth.Q: What are the challenges and what can you really do, innovative packaging is just one aspect of being able to deal with the perception and a real perception problem that carbonated category is faced with bit what else can companies like yours do?A: One of the things which we are doing is to cut down on the sugar. What is sweet for you is very different for what is sweet for somebody else. So, giving a range of products which the consumers can choose from is possibly the best thing we can do in terms of  addressing this particular challenge.Q: What is the hardest part today about building customer loyalty?A: Hardest part about building customer loyalty in my book is having distinctly superior product. I think today there is one part logic in what the consumer buys but many parts of magic in what the consumer buys. So, it is getting the combination right all the time. I don't think this country will ever and consumers will ever buy inferior products, those days are over. Every category you are seeing an absolute shift in the step jump which is required in quality. So, if you look at products of today and products of five years ago they are like chalk and cheese, dramatic improvement in every single product. Improvement in the construct of the product, improvement in the sensorial's of the product, both have moved up dramatically.Q: Why is that? Is it because people have access to more information, people are just more aware, exposed to products, tasting them outside of India and hence demanding more and better from companies like yours?A: All that you said is absolutely right. I think fundamental is exposure. You are used to so much more of tasting, experiencing brands from outside of India, equally you are able to experience them online.  For example one of the biggest challenges if I were to give you one category was the luxury category. If you take the luxury category I think walking into an outlet required a lot of guts for consumers. Today consumers scroll through luxury brand site everyday sitting in their living room. So, luxury brands are so much more accessible  today to consumers. So, this exposure across the world has taken away this thing of not for me specifically online scrolling, any brand is for me at a point of time, I will file away that information in my head, I think their expectations come from that.Q: It was very interesting that you talked about this premiumisation and premium innovation that you expect much more of in the Indian market and we have sort of over the last few years, everyone has talked about the value for money market and how price conscious Indians are and so on and so forth. How are you seeing that change and what does premuimisation then truly mean today because it is not about price, it is really about -- if you talk to Maruti they are saying it is the small car but with more features and so on and so forth so it is affordable but premium affordable, what does that mean for a category like yours?A: I think the important thing is every brand will always want what we call a price premium or whatever else it is offering. That price premium in the old days came only from the product side with what you did and what you offered. Today if you look at consumers, a lot of the price premium also comes from the experience side. So, when you talk for Maruti, Maruti is just not a car, it is also about the service center and what you do. So, it is the ability for a brand to completely manage that thing and hence deliver on that expectation is what will command the price premium. I think consistently people are saying give me a better product, more features but not for say more price. If I get 50 percent more features, can I get it for 30 percent more price, that to them is value and that is how they calibrate value in their minds.Q: Since we are still talking about consumers and the challenge that companies are faced with today at least in the FMCG category is the home grown brands. I don’t think you see yourself necessarily as not Indian brand operating in India neither your competitors. However, Patanjali has clearly taken the swadeshi mantle and is driving the swadeshi crusade into your turf and territory. How do you see that playing out and do you believe that consumers care today? A: Here is my input for you on this. I have handled about 50 brands in my life. When I looked at it, consumers are not worried whether the brand comes from Britain or America or somewhere else unless of course you give them the authenticity of that country. Suppose you say you have champagne and you bottle it in India - you can’t do it technically - they will say okay it is French, are you giving me a slice of French aspiration or whatever it is otherwise consumers just don’t know.For example, most people thought Nokia was an Indian brand, most people would think that Rin is an Indian brand, most people might think that Everyday from Nestle is an Indian brand. I think as long as a brand meets the promise and continues to exceed on the promise it makes to the consumer, consumers will buy it. Consumers are not journalists like you or executives like me who log on to see which country, they don’t bother about such things. They just want a brand which is wholesome, which delivers on its promise, they go and buy. I believe the swadeshi and MNC debate is not a debate worth at least in the consumers mind.Q: Let me now ask you about the challenge from an employee point of view and from an organisational structure point of view that the generation M poses. How are you coping with it?A: That is an excellent question. If you look at it today two thirds of the country's millennials and in our case 62 percent of our work force is millennials. They are a very different generation. Number one, they do not believe in hierarchy. Number two, they want to do things yesterday, not even today, absolutely. Number three, they come to work because they believe there is progress, they come to work because they have great callings.Fourth, very important, they are volunteers, they are not employees. They have given two years of their time to PepsiCo. It is for us me and my management team and all the leaders to ensure that they extend that voluntarism by another year. Why do they volunteer? They volunteer because they believe in the cause of your company and where you are headed. They believe that they need 100 percent of information and open communication.So, the biggest stress for having millennials in organisation is actually with leadership. Leadership needs to change. Indian leadership has traditionally irrespective of what people say and it is not true, Indian leaders have always been top down, Indian leaders have always locked themselves in their office, not meeting people, not knowing more than 25 people in the organisation, that won't work with these millennials. With the millennials they want your time.Q: So, give me specific instances of what you have been able to do at Pepsi?A: First, one of the things we are doing right now at Pepsi, we have just started this off. We have constituted of what we call the Y-comm or the generation Y board. People like me and senior leaders in the company are nominated by the company. These guys are elected by the company. So, there are departments who have elected nine people to come on board as Y-comm and these guys are specifically going to address two-three collective skill areas of the company.In every company you have individual skills and you have collective skills. The example of that to give an analogy would be in cricket. In T20 fielding is a collective skill, while people might be a good batsmen or good bowler but all 11 people have to be good fielder. So, I believe in a future company, everybody in the company needs to be customer centric and consumer centric. Everybody in the company needs to be digitally savvy and everybody in the company needs to contribute and draw from the culture well. That is what I would think as collective skill which are absolutely needed and one of the things we are charging the Y-comm with is actually developing their collective skill mindset in the organisation. One of the first thing they will do is actually reverse mentor a senior leader, number one.Q: What have they told you, have you reverse mentor yet?A: They will start. In the next interview I will talk to you about what they will tell me. Second is how do we make the whole process of engagement between us and the consumer completely digitally sensitive and digitally right. We already do a lot of online reputation management, we listen to consumers every day and we respond to consumers every day, but how do we take it when you level if something we are doing.Next, we are engaging with future employees. For example people in B-school today. We got a bunch of select B-schools, so we have started the programme called crash the course. I just did a one hour session for 14 B-schools on what to expect from 2 year MBA. I did it as a webcast 2,800 students. I talked to them about what the MBA degree will do or cannot do and then we have questions for about 45 minutes.Next, we have a bunch of people from the same institute going there and talking to them and saying, how do you choose your subject and how do you choose your summer trainee etc. Then for a summer trainee programme, we are making the summer trainee programme equal to the final placement, because we see people for 8 weeks from a training programme and we give them live projects.At the end of the 8 weeks, the board looks at them and says if the person is good, we offer them the job straightaway. In the last two years we offered about 25-26 people and 23 people have joined. We typically take 130 people.Q: How many stayed?A: All of them have stayed. So for us we are doing things extremely differently for the millennial to stay with us. Now we are starting a new contest where pairs of 2 either you are in B-school or you are working outside, even people who are working outside can enter this contest. We are going to run this contest by the end of this month and the number one team which wins the contest gets an automatic placement.The number 2, 3 etc will get country placement, so one will be automatic placement into PepsiCo Global and 2, 3 will be at a local level. We are doing a number of things to target the millennial and the digitally savvy employee of the future.Q: Are you getting them to stay beyond the 2 years as you believed that they are voluntary with you or is attrition still a big challenge?A: I think attrition will always be a challenge in the Indian market and it is for a very different reason. One is mobility, people are extremely mobile, their skill base, transferable etc, but more important and all of that and I have seen this data over many, many companies and points.Anybody who has an EMI of more than 25 percent of take home salary is in the job market every day, because he wants that EMI to come down to 10 percent, otherwise he or she is scared. So what is driving these changes of job is the thing saying, I have a hurried aspiration. I need a holiday, I need a car, I need this, I need that and one way to fuel that or funded is the EMI.When the EMI come down to 10 percent of take home salary, then the person feels safe and secure in the job and the career. So till that happens people are shifting and is a funny paradox because if you look at executive careers and successful careers, the bulk of your money if you retire at 60 and you make let say Rs 100 about Rs 120 of that is made between 40 and 60, but people change for Rs 10,000 when they are in their 30s which is absolutely a silly thing to do and I keep telling people have patience, because this is like you have to cash in the chip once, but you have to cash it at the best value.If you keep changing jobs the value of that chip will drop. So I believe people need to be a little more patient and I think the combination of your own personal brand and a great company brand, I think that combination is what pushes you into a bigger league in order to be better and people will need to understand that.Q: Given the fact that you have a clear purpose and you have been working with that clear purpose, not just in India but globally for several years now. The fact that this is a closed market, the fact that you have got 22 brands here, 8 brands that have crossed the Rs 1,000 crore in annual retail sales. What can we expect now as the next levers of growth?A: India I think has moved out quite some time ago if I would say maybe 5-7 years from being a penetration market. In almost every category you have the price points which are very good right now, so you have a Rs 1 price point, Rs 2 price point, Rs 5 price, at Rs 10, Rs 15, Rs 20. Okay, you have a Rs 2 lakh cars, you have a Rs 1.5 lakh car.I think in every single category price point is not the issue, that is there. In almost all categories the real challenge is to drive consumption and is to drive replacement. Those are the bigger triggers right now in Indian market and penetration is all about fulfilling needs as I have told you. This game is about wants and desire. How do you sell someone the fourth bag when she has already has three or the fourth shoe when she has three or how do get somebody to replace their refrigerator or their car, that game is a very different game and that game is one off premiumisation, improved feature and crunching time and delivery in a very different manner. Those are the kind of things which are difficult.Q: So is that what is going to be driving you of course your categories?A: Absolutely, we need to look at consumption. I believe juices will be a very big category. I believe water will be a very big category. I think driving consumption in those areas will be critical.Q: Do you see the juices as well as the water categories being your fastest growth category as well as your most invested in category?A: I would say they will be higher on priority for us definitely.Q: Outside of that anything new and exciting that we don't know yet about but we could perhaps see you move towards something?A: Nothing that I can talk about except that I think recruiting millennials and getting them to stay and work for you and really contribute to the companies success I believe will be one of the biggest challenges for the Indian businesses in the coming decade.Q: You talked about how you are spending much more on digital today away from traditional advertising. However in the manner in which you engage with consumers, starting conversations online and so on and so forth, how does that also change the way that Pepsi actually spends its money - IPL and so on and so forth? Are there now lessons to be learnt in how you spend specially on these large format occasions?A: Yes. We spent a lot of money in the digital format for example we ran a very successful  back to school campaign, we ran some very rich content around Diwali. I believe the millennial consumer today is much more attracted to content.In the past we have always tried to fit content, advertising, brand, all in one line, today the consumer is so savvy saying, I take this, I think that is a nice story you have told me, it is a good content I move on. They are not looking for absolutely replicable or consistency in content.Something is happening somewhere, I need to know about it, you have given it to me in a fun and enjoyable manner, let me take it, that is how people are looking at content. I think PepsiCo has generated a lot of content in that direction.Q: What is the brand challenge that it poses to somebody like you?A: The biggest brand challenge not just for us but all brand owners is, one, having a strategy for the brand and second, not getting seduced by tactics or strategy. A number of people can confuse doing 365 different things. While 365 different things to do is fantastic but all of them must in a way be inline with your strategy. So, the biggest danger for  people is to confuse a bunch of tactics for strategy and that is what I see in the digital world right now.When you look at some of the work which some beauty brands have done, I would say I would never do that because it is a tactic finally and tactics can never replace strategy, that is a big challenge for all brand owners.Q: Let me end by asking you, what is the India strategy then today?A: I would say the India strategy is in our books to be the nutritious partner to the Indian society and government. To enable farmers to virtually double their income as said by the Prime Minister since we are large agri based company, I think that is our commitment to the country.