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PepsiCo: No Deposit, No Return

By Mel Duvall  |  Posted 2003-05-01 Print this article Print

The choice of a new generation is rife with options. Will Pepsi prove itself to be up to the challenge?

A salty-snack maker in Texas pioneered the use of wireless communications on delivery routes. Among the copycats: Pepsico, Pepsi bottling companies and such Pepsi subsidiaries as Quaker Oats and Tropicana. So how come all these Pepsi units invested in different wireless systems? After all, Pepsi owns Frito-lay, the company that showed the world how to turn drivers into an on-the-spot pricing and promotion infantry. This is the story of how hard it can be to get the benefits of a single technology to seep throughout a massive company.

As day breaks over Minneapolis, Mike Kinney climbs into his 10-wheel, side-loading Pepsi truck. He arranges his tools for the job ahead: coffee in its holder, sunglasses on the visor and wireless handheld computer in a cradle bolted to the floor.

Kinney has sold, delivered or shelved Pepsi drinks for 26 years. When he started in the late 1970s, he recorded deliveries on paper with triplicate carbons. Since 1990, he has used various handheld computers, mainly from Intermec Technologies. About six months ago, PepsiAmericas, the $3 billion a year bottler based in Minneapolis, gave Kinney and 100 of his fellow Teamsters a new handheld computer from Symbol Technologies.

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At seven inches long, the device looks like an overgrown calculator. It has 23 keys and weighs about a pound and a half. It can zap information over Bluetooth, Wi-Fi and wireless wide-area networks. "It's a lot faster and a lot nicer" than the Intermec, Kinney says. With it, he tracks the Pepsi cases he delivers to restaurants, schools and offices five days a week.

The Symbol PDT 8000 is the latest handheld computer in use at PepsiCo. But it's not the only one.

An hour into Kinney's shift, Pepsi driver Dwayne McArthur starts his day in Calgary, Alberta, Canada. He has worked for the world's biggest Pepsi bottler, the $9 billion Pepsi Bottling Group in Somers, N.Y., for the past year. When McArthur gets to a local distribution center at 5:00 a.m., he plucks his brick-shaped Intermec 6000 computer from a docking station and walks to his truck.

Intermec units have been bumping around for a decade or more in some pockets of PepsiCo—including Frito-Lay, its market-dominating salty-snack subsidiary. But more prominent at Frito-Lay, which 17 years ago became one of the first major companies in the world to use mobile technology in the field, are Fujitsu handheld devices.

Dan MacDonald, who sells and delivers chips in Westchester County, N.Y., tracks his truckloads on a gray Fujitsu device that Frito-Lay gave him when he started eight years ago. He slides it out of the back pocket of his jeans. "They've changed out the software a few times, but this is my original computer," he says.

Frito-Lay's reputation as a technology innovator grew from its pioneering use of handheld computers and custom-written sales software. In the early 1990s, the setup let Frito-Lay shift some decisions about product pricing from headquarters in suburban Dallas to the in-the-store world of route drivers.

The surprising part about these three drivers is that they all use different handhelds even though they all work for the same corporate parent, PepsiCo.

PepsiCo likes to point out how Frito-Lay long ago led the way in what is now the hot enterprise technology: wireless data communications. When a Frito-Lay man entered a store and noticed, for example, that competitor Utz Quality Foods had its potato chips on two more shelves than usual or had dropped a few cents from each bag's price, he could discuss it with the store manager and then, on the spot, lower the price on his own Lay's or Ruffles. He would type the changes into the handheld. At day's end, he uploaded the data to Frito-Lay's mainframe sales and pricing databases via docking stations plugged into a local area network. Frito-Lay upgraded the system in 1992 and again in 1995.

But Frito-Lay is no longer even the most advanced Pepsi unit in wireless technology. PepsiCo's three biggest bottlers—Pepsi Bottling Group, PepsiAmericas and Pepsi Bottling Ventures—each recently started rolling out their own new lightweight handhelds and sales software.

PepsiCo's central technology service, known as the Business Solutions Group, has never successfully unified information systems across Pepsi businesses.

Now, to resuscitate cross-company technology efforts, PepsiCo is searching for a corporate-level chief information officer, to fill a position that's been vacant for three years.

Expected to be hired this year, the person who takes the job will have to stanch:

  • High turnover of technology executives. Many PepsiCo managers have left expressing disappointment in the company's lack of a clearly articulated technology strategy. Frito-Lay, once a wireless leader, has had six chief information officers in the past decade.

  • Mixed messages. PepsiCo's top leaders, including Chief Executive Steve Reinemund and President Indra Nooyi, have not reined technology initiatives into a single standard, letting individual business units pursue their own interests.

  • Suffering gross margins. If Pepsi had been able to achieve the same kind of unified technology strategy as Colgate-Palmolive, another large consumer packaged goods company, its bottom line could be $1.7 billion higher today.

    The new PepsiCo CIO will also need to do spadework for carrying out a long-promoted concept in the company called the "Power of One." This principle, espoused by famed Pepsi Chief Executive Roger Enrico, is supposed to lead to the integration of selling operations and distribution logistics. Instead, the company continues to run separate distribution systems for Pepsi, Tropicana, Frito-Lay and Quaker, even though all four businesses deliver their products to the same U.S. grocery and convenience stores.

    To get a sense of how Pepsi has missed its chance to achieve billion-dollar savings by effectively transferring innovative technology throughout its business, look back to Frito-Lay.

    The snack-maker first introduced mobile data communications to its route drivers in 1986. The initial units were dinosaurs by today's standards, 10 inches long with one-line screens. But they were effective. Frito-Lay revenues jumped 14% per year between 1986 and 1990, from $3 billion to $5 billion. Operating profits grew at an even faster rate of 30%, from $348 million in 1986 to $934 million in 1990.

    But PepsiCo hasn't systematically reused Frito-Lay's knowledge in other parts of the company. Each unit of PepsiCo has negotiated for and bought its handhelds separately. The same goes for the supporting software.

    Pepsi Bottling Group, PepsiAmericas and Pepsi Bottling Ventures have now eclipsed Frito-Lay in the use of advanced handheld technology. Their new wireless devices from Symbol and Intermec run all new sales software, some of which uses radio frequency tags to monitor inventory and manage pricing right from store shelves.

    Even so, the three bottlers did it independently of each other, creating a stew of hardware and software serving PepsiCo.

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    Contributing Editor
    Mel Duvall is a veteran business and technology journalist, having written for a variety of daily newspapers and magazines for 17 years. Most recently he was the Business Commerce Editor for Interactive Week, and previously served as a senior business writer for The Financial Post.

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