3,300 jobs to go as part of Pepsi’s productivity program

Posted by James Ferre on 15th October 2008

PepsiCo, one of the world’s largest food and beverage companies, has announced a ‘Productivity for Growth Intiative’ expected to provide the company with savings of US$1.2 billion. The expected savings are to be invested in brand building, long-term R&D, innovation and growth initiatives in key markets.

Approximately 3,300 jobs will go worldwide as the American company seeks to improve on their third quarter net revenue growth of 11 per cent – which failed to meet expectations. The company has reported today that no jobs will be cut in Australia.

The company’s sales of water and carbonated beverages in America restricted success for the beverage giant, with their international markets and food divisions countering the negativity in the US beverage sector. “In the third quarter, our worldwide snacks and international beverage businesses performed well once again. We had solid top- and bottom-line results in the face of a challenging macro environment and the most difficult quarterly comparisons on commodity cost inputs,” PepsiCo Chairman and Chief Executive Officer, Indra Nooyi, said. “We were adversely impacted by continued weakness in the US liquid refreshment beverage category, which resulted in disappointing performance in our domestic beverage business. We are taking important steps to revitalize our beverage portfolio.”

“While we can’t control the macro economic situation, we can enhance PepsiCo’s operating agility to respond to the changing environment,” Mrs Nooyi suggested. “To do so, we are implementing a broad-based productivity program, which we expect will produce $1.2 billion in pre-tax savings over three years. The majority of the savings will be invested in our businesses. A primary focus will be restoring growth to our North American beverage business. At the same time, we will increase our investment in developing markets, make selective investments to continue growing our global snacks business and accelerate our global R&D initiatives to help secure our future innovation pipeline. We firmly believe that now is the time to invest in our future growth.”

In the third quarter, the LRB (liquid refreshment beverage) category was down 3 per cent in measured channels, reflecting a decline across the two largest channels, grocery and convenience, and a decline in unflavoured water. In this environment, volume decreased 4 per cent in North America. Net revenue was flat for the quarter and operating profit declined 11 per cent, largely due to higher input costs, particularly higher fuel costs, and expenses associated with the implementation of information technology initiatives.

North American carbonated soft drink (CSD) volume declined 3 per cent due to category softness, with a volume increase in Mountain Dew partially offsetting a mid-single-digit decline in other CSD brands. In non-carbonated beverages, volume was down 5 percent, reflecting double-digit declines in unflavoured water and Propel.

Gatorade managed to gain 1.4 points of market share despite a fall in volume and the company managed to pick up in the energy drink sector. The North American energy drinks portfolio moved into the number 3 spot in measured channels led by strong growth in AMP energy drink and Starbucks Energy Coffee.

In Australia, their snacks business experienced a low-single-digit decline, primarily due to increased pricing – according to the company.

Pepsi believes the new productivity program will produce pre-tax savings of more than $1.2 billion over the next 3 years with $350 million – $400 million of cost savings flowing through in 2009.

“The program includes actions in all segments of the business that the company believes will simplify the organization for more effective and timely decision-making; increase cost competitiveness across the supply chain; and upgrade and streamline the product portfolio,” they advised in a statement. “Globally, approximately 3,300 positions will be eliminated in connection with the productivity program, of which about 40 per cent relate to the closing of up to six plants and other capacity rationalization actions, which will be announced by the end of the year.”

The program is slated for completion in the first quarter of 2009.