Pepsi CEO Tours China To Get a Feel for Market

WSJ.com JULY 1, 2009

Shanghai -- PepsiCo Inc. Chairman and CEO Indra Nooyi ducked into a doorway on a small side street here, dodging hanging laundry and skirting parked bicycles. Cramming into a small apartment that houses four generations of a Chinese family, she and a handful of fellow executives peppered them with questions about China's rapid economic development, their shopping habits and how they feel about Western brands.

The visit, one sweltering morning last week, was part of a 10-day "immersion" tour of China for Ms. Nooyi, who is seeking to strengthen the Purchase, N.Y., company's business in emerging markets. "I wanted to look at how people live, how they eat, what the growth possibilities are," she said in an interview Tuesday in Beijing. What she has seen has persuaded her that PepsiCo's approach to the Chinese market "is good, but not good enough. The opportunities are so much bigger." The company's "model for China has to be vastly different."

China is a critical market for PepsiCo, its second-largest beverage market after the U.S. and one of its fastest-growing snack food markets. As the recession has damped sales in the U.S., it's relying increasingly for growth on big emerging markets such as China and India. Pepsi said last November that it would invest $1 billion in China over four years to build new factories, expand research and development of products tailored to local palates and bolster the company's sales and distribution network. Ms. Nooyi said she now thinks an even greater investment may be needed.

Pepsi is also out to make inroads against rival Coca-Cola Co., which was rebuffed by Chinese regulators in March from acquiring a large Chinese juice company, China Huiyuan Juice Group Ltd. The two companies have bitterly fought over the past few years to dominate cola sales. Coke, which used its sponsorship of the Beijing Olympics to promote its namesake brand, has an edge over Pepsi, with a 47.3% share of the cola market in China, against Pepsi's 44.5%, according to market research firm Euromonitor International. But Pepsi disputes those percentages, saying data collected by other researchers show its cola dominates. Overall, Coke has a 15.3% share of the Chinese beverage market, while Pepsi has 6.2%, according to Euromonitor.

Ms. Nooyi challenged her China team to come up with ideas for products that cater to China's large older population. She also called for more in-depth research into women who, in China, are likely juggling work and motherhood and making the key day-to-day consumption decisions for households. She says she's calling on her executives to think "differently and disruptively," encouraging them to look beyond the company's traditional businesses in China.

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