Inside Frito-Lay's growth engine

by Keith Nunes
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Tom Greco, c.e.o. of PepsiCo's Frito-Lay North America business unit, described the "consumer revolution" taking place.

AUSTIN, TEXAS — Tom Greco, chief executive officer of PepsiCo’s Frito-Lay North America business unit, has three pieces of advice for anyone wanting to succeed in consumer packaged goods:

• Think bold, push boundaries, take risks and learn;

• Collaborate with partners. “You will not be able to do it yourself,” he said; and

• Move fast. Done is better than perfect. Speed is a weapon.

Mr. Greco spoke April 21 at the IRI Summit taking place this week in Austin, and the backdrop for his advice is what he called the “consumer revolution” that is taking place. He described sweeping societal changes, most notably the growth of smaller, more diverse households.

“If you look back to the ‘70s, 40% of the population was married with children,” Mr. Greco said. “Now it is less than half that. We are seeing much more diversity. There are more single moms, and immigration is changing the ethnicity landscape in the country.”

He added that more people are moving to cities. Today, 50% of the population lives around cities and he said that figure is forecast to rise to 70% by 2050.

“Another issue we are seeing is income inequality,” Mr. Greco said. “Since 1980, 90% of the families in America have had stagnant income. There are a small number of people looking for premium experiences, and then you have close to 50 million people on some form government assistance.”

Taken as a whole, Mr. Greco said these issues have had a profound impact on food and beverage consumption.

“It affects how we eat and where we eat,” he said. “Even at-home consumption has changed. On-the-go is a huge growth business.”

Amidst the changes, Mr. Greco said the consumer also is becoming more connected. He noted that by 2020 there will be 7.6 billion people connected to 50 billion “devices,” which he described as smartphones, tablets, computers as well as sensors in cars and appliances.

“The smartphone alone is fundamentally changing how we make, sell and market our products,” he said. “People are using it to shop, find recipes, find stores, and evaluate restaurant performance. And many people share those experiences right away.”

To keep pace with the changes taking place in society, Mr. Greco said PepsiCo focuses on three keys: demand science, innovation and brand building. Demand science requires clearly understanding what drives demand in a specific space.

“Then we take that knowledge and give it to R.&D.,” he said.

It was through this process that the company identified an opportunity in food service, Mr. Greco said.

“We went to Taco Bell a couple of years ago and we talked to them about food innovation, specifically with Doritos,” he said. “We struggled with this internally, because the Doritos brand equities are it’s a triangle, orange and crunchy. Eventually we decided a Dorito did not have to be a triangle. We made it into a taco. From there came the Doritos Locos Taco. A second version was introduced last year and we are in the process of finalizing the launch of the Fritos Locos Taco.”

Transforming chips into tacos for Taco Bell has been a major innovation for Frito-Lay.

The next challenge facing C.P.G. marketers will be personalization, Mr. Greco said.

“How do you get leverage on a local basis?” he asked.

This year Frito-Lay North America has added a local component to its Do Us a Flavor contest in which consumers submit suggestions for new flavors and combinations, but in this year’s contest the company is asking consumers to also include the location that inspired the flavor.

“We are a growth company at PepsiCo,” Mr. Greco said. “There are other models that don’t require growth. They focus on cost cutting and returning cash to shareholders. We are not that model. To grow we need to adapt and focus on demand science, innovation and brand building.”
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