PepsiCo Inc PEP
Q4 2011 Earnings Call Transcript

Unidentified Analyst: Indra, how do you know this is enough and I say that in the context particularly around the spend-back? So, $500 million to $600 million, and only gets to you kind of half way to where you were at the beginning part of this decade, even if you pull out (PB UK) asset and Wimm-Bill-Dann. How do you know that it is enough and in particular, what does it tell us about the ROI of the overall business and the trend of the ROI of the overall business? As you are spending, more and more and you are doing more and more, but you are getting to the same number on the growth prospective. How should we feel about that?

Indra K. Nooyi - Chairman and CEO: I will make a couple of comments and I am going to toss it to Al to talk about how they are re-orienting the advertising spending. You focus more on North American Beverages, right. Let me start by saying to you that, over the last five years the A&M has not been cut. That’s the interesting part of the whole North American beverage discussion. So the dollar amount has not been cut, the non-working A&Ms squeezed out the working A&Ms, that’s the big issue. What you see is measured media, we look at total A&M in the North American beverage business, nothing has changed. The thing to be careful about Gatorade for example, the working media that you see, the ads, are a very small portion of Gatorade. A lot of Gatorade is more what they do with sideline presence and what they do with athletes and what they do to market the products to them. So, you’ve got to look at the overall A&M bucket. Over the last five years, the single biggest trend is that, we had non-working A&Ms squeeze out working A&Ms, because inflation in contracts and we had too many agency relationships. And the second is that we supported too many brands. In North America because we are a total beverage company, with a large portfolio of non-carbon carbonated brands, we supported too many brands. So, the first thing we're doing is first focusing our efforts behind a few brands and Al has got a list of brands, he is really going to focus on and by shifting more nonworking to working A&M. What you're going to see is that 15% to 20% increase in visible dollars that we're talking about is going to feel like hell of a lot more in North America, that's the top line number, but that's not enough. If you don't support the A&M, the innovation and execution, you can talk about the brands all you want, but you need news to drive incrementality, but that's why we're going to focus a lot more on innovation and Al maybe you can talk about some of the innovation the second point and execution on the ground is going to really going to go up when we start tailoring assortments by store. So, we can actually get that increment of growth. Lastly, on total growth, the marketplace in North American beverage business is only growing 1% in volume and in value maybe 3% to 4%. In the last four to five years, the new entrants in the pure-plays have taken a lot of the growth and the big 2, 2.5, 3 have not really had as much of the growth as a pure-play. So, we have to figure out how to be a pure-play within our own Company and it's not for not having the innovation, we have had tons of innovation, we just kill it too fast and there is a new growth ventures that Al is setting up now, mirroring what we've done with Frito-Lay would allow us to incubate this new products, so it doesn't always have to be a 50 million, 100 million case innovation in the first year, we can actually start smaller and build up the business. So, let me turn it to Al to give you his perspective. Al, it’s all yours.