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  1. 1. Pepsi Case
  2. 2. Entering new Company, I often face a paradigm Decisions were determined on base of logic and facts I could see another facts And basing on the same logic come to another decisions
  3. 3. What is PepsiCo? Pepsi’s mission is “we sell soda”. Also Pepsi is a part of Pepsico company. While Pepsico mission is to make money and investments. It possesses a huge variety of businesses all over the world. Even shipping is among them. In Russia, for example, Pizza-Hut
  4. 4. Separately all over the world Lays and Pepsi-Cola are sold separately by different companies all over the world
  5. 5. The same way in Russia, but… There was a crisis in Russia in 1998 and many companies lost their sales The sales of meat and bread were fine, but all the extra-goods sales dropped As the sales dropped the companies had to reduce its staff
  6. 6. What did Lays do? New-York HQ decided to give away a part of the Lays business to Pepsi and then after a period of 3 years make the final decision — either Pepsi will possesses all the Lays business or Lays take it back While in Moscow region Lays continued its business operations, all the Russian regions (the biggest part of the sales) were transferred to Pepsi
  7. 7. So how did Lays give away regions? They reduced staff, some of the personnel trans- ferred to Pepsi and Lays business continued Part of the time there was a conversion period and then started the field work …and Pepsi’s chips busi- ness started to grow and everything was fine
  8. 8. The “potato chips” crisis Potato chips manufactures were located in Poland A unique polish promo «money in a pack» blew up the market and the manufacturing resources were highly utilized Most of the chips stocks were sold in Poland, while the leftover exported to other countries
  9. 9. How did it influence Russia? The market share dropped twice! After the “potato chips” crisis both companies (Lays in Moscow and Pepsi in regions) started to get their market shares back
  10. 10. But the come back wasn’t 100% successful While Lays (Moscow region) reached the same sales’ levels as it had got before the “potato chips” crisis, the Pepsi’s sales were a way too low and nobody knew why Both companies used the same business operations and principles as they had used before the crisis. But only one of them was successful
  11. 11. The situation was getting worse Lays couldn’t take the business back from Pepsi, because it lacked its own business operations. While Pepsi understood that with such poor results the Lays’ business would be taken away soon
  12. 12. There was no silver bullet In such cases, when everything is done according to the rules and procedures which once have been successful and are success- ful now (even with the other goods) — there is not a single problem, which you can kill with a “silver” bullet
  13. 13. In the same time at Pepsi… — We need a volunteer to get the $100M business back on its tracks
  14. 14. That was a real challenge So I had left Lays for Pepsi, where I become responsible for all the chips operations
  15. 15. So what did I find? Devil is in the details – there was an urgent need for a team work between many business units
  16. 16. Those units were 1. Logistics 2. Stocks 3. HR 4. Distribution 5. Sales 6. Sales marketing 7. Procurement
  17. 17. Stocks During the crisis Pepsi’s stocks had become empty and chips were shipped directly to distributors
  18. 18. That led to stocks closing Stocks were closed and there was no place for the goods
  19. 19. In regions it looked like this Distributors bought chips only once a month, while soda was bought every day Unstable shipment = permanent out of stock Trucks with Pepsi-Cola were underloaded — there was only 19,5 tons of water pallets and the rest of the truck space was free 1
  20. 20. So I proposed the next approach* *in the central region Chips We built a warehouse for the chips and loaded 500 kg of them into each truck with Pepsi-Cola. That was a usual one day of sales for a client 500 kg of chips19,5 tons of soda
  21. 21. That allowed us to save money Because of the proposed approach the chips shipment became free and we invested the saved money into the development . Everything was achieved using existing resources only
  22. 22. Logistics Planning managers receive a bonus when there are no delays and out of stock cases simultaneously After the crisis in a case with a short supply of chips Pepsi overestimated the demand. The shipped goods weren’t sold and had to be discarded The managers had been fined and were afraid to order more goods
  23. 23. Despite the former fines By taking the responsibility for any consequences I was able to convince the planning managers to order more goods when it was necessary Due to my good understanding of the key distributors I was always able to keep my promises
  24. 24. Procurement department Lays had its own order processing system and Pepsi had its own “making order” principles — the business processes didn’t meet each other and orders from Pepsi were not always proceeded as needed Due to my knowledge of the “Lays’ inside kitchen” I was able to organize effective cooperation
  25. 25. Distribution Overestimated market demand led to huge amount of leftover goods at stores, which started to go bad The wholesalers could not buy more goods (they had got full stocks already) So the leftover goods were sold with a huge discount to the retail outlets
  26. 26. The stagnation was getting worse Магазин The wholesalers couldn’t sell their stocks to the retail shops with a price higher than what Pepsi had offered when it sold the leftover goods Wholesalers’ goods expired and they didn’t order more
  27. 27. How did we fix it? I hold several personal meetings with the biggest wholesalers and assured them in a stable pricing policy of Pepsi company Then I coached Pepsi employees to make such negotiations by themselves and they successfully did that with the rest of the wholesalers Thereby the problem of resumption of the shipments to the wholesalers was solved
  28. 28. Sales Pepsi goods are cheap and heavy Distributors don’t move it from one region in to another At the shops the business is protected with a cooler
  29. 29. How does a cooler help? If you set up a cooler the shops will always make orders. It means that a cooler increases sales several times You allow to put in the cooler only those goods you sell
  30. 30. But it is different with the chips Chips are cheap and lightweight goods When a truck drives between cities with a cargo of sunflower oil the chips are moved for free, just putted on top of the oil pallets with bottles Retail shops don’t consider potato chips as one of the most profitable goods to sale and also you can’t protect your business (as a supplier) with cooler
  31. 31. It’s easier for the others to enter the market There are such distributors which ship different kinds of chips, as it is profitable and convenient for the shop
  32. 32. The consequences were dreadful After the chips crisis such distributors won the competition with Pepsi
  33. 33. So I made a knight’s move Russia has become the first country with two distributors on the same territory simultaneously The first one delivered water and chips The other one — only chips
  34. 34. How did we do that? I hold several meetings with the biggest distributors and developed negotiation methodology for such cases Then I coached Pepsi employees to make such negotiations by themselves and they successfully did that with the rest of the distributors
  35. 35. How did we do that? We built a model where Pepsi sold chips to some part of the retail shops, while the other distributor (multi-chips) sold its goods to the rest of the retail shops in region, but due to a signed contract with Pepsi, that distributor promoted and sold Lays most of all Магазин Магазин
  36. 36. The model’s details Pepsi signed a contract with a multi- chips distributor and allowed to make business on its own At the retail outlets both distributors sale goods with the same prices without dumping At the key points sales were performed only by a Pepsi distributor
  37. 37. Sales marketing department Such department did not exist before There were trade marketing budgets which accounted as a pure margin every year, because they weren’t spent I created trade marketing department, where I deployed policies and prin- ciples which fit the chips market $
  38. 38. What were the final results? In one year the Pepsi team successfully took away the Lays business in Moscow And still it sells the Lays products using it is own resources Nowadays Pepsi includes WimBilDan, Lebedyan and many other brands
  39. 39. If told in numbers… It was the first successful sales experience of the non-water products Central region market increased by 50% Regions market increased by 25% Chips market increased by 15%
  40. 40. What happened to me after the case? I was promoted to the next challenging position inside the Pepsi company while my former post was given to another Pepsi employee
  41. 41. Develop model Persuade boss Compete !Learn more My conclusions from the case