As a manufacturer and marketer of major food and beverage brands, PepsiCo Inc. has a big thirst for doing more things digitally. And it’s using one of its biggest and most well-known brands—Frito-Lay—to trot out some new initiatives.
PepsiCo, the supplier of big food and beverage brands including Pepsi, Gatorade, Tropicana, Doritos, Lipton Teas and Quaker Food, is adding digital capabilities to its supply chain and network of distributors and retailers. At the digital forefront is Frito-Lay, which is testing new technology and digital services to better automate its supply chain, Frito-Lay North America president and chief operating officer Vivek Sankaran told industry analysts last month at the Consumer Analyst Group of New York conference in Boca Raton, Fla. Frito-Lay last year accounted for 25%—$12.65 billion—of all revenue at PepsiCo.
A big focus for Frito-Lay, Sankaran said, is incorporating more digital tools and services into its supply chain and through its distribution network, which provides goods for more than 300,000 big and small retailers. “Despite our capabilities today, we believe we have another ‘S curve’ of performance with advances in technology in DSD,” or direct store delivery, under which Frito-Lay delivers products directly to retailers, Sankaran said. “With the data we are collecting and the digital capabilities we are enabling for the front line, we believe we can further improve how we plan our business, segment customers and stores and integrate in-store and online so that our consumers can find the right Frito-Lay product at the right time in the right store.” (An S curve is a term used to predict that a business will improve its performance over a period of time.)
One example is the use of better data analytics to help distributors and retailers track inventory. “We are vastly improving our ordering algorithms to automatically generate the perfect order for that store based on sales histories, counter trends and inventories,” he told analysts. “We are investing in technologies that allow managers to assign specific tasks and close the loop on timeliness and quality of execution and deploy new label models that allow for more specialization of tasks and integration across those tasks.”
A particularly promising new technology Frito-Lay has deployed is robotics.
“We have installed robotic truck loaders and automated picking for individual small bags at some of our facilities to allow fully automated mixed cases for delivery to small-format stores,” Sankaran told the analysts. “This is something we never thought possible five years ago. Technology advances, and now we can pick ‘eaches’ with robots.” (“Eaches” refers to individual packages that have been broken out from a larger shipping container.)
The company’s digital supply chain developments coincide with its rapid growth in digital commerce. Last year, PepsiCo doubled its global e-commerce sales to $1 billion from about $500 million in 2016; its 2017 e-commerce sales accounted for 1.6% of the company’s total 2017 sales of $63.52 billion.
Although PepsiCo didn’t break out e-commerce numbers for 2016—or specify the mix between B2B and retail sales—doing more sales online is a strategic priority and fast-growing channel for PepsiCo, Sankaran said. “We at PepsiCo have about a $1 billion business in online annualized retail sales globally, and we are growing faster than the category,” he said at the conference.
In a recent earnings call with analysts, PepsiCo. said that U.S. e-commerce sales grew by 80% last year and e-commerce sales in China doubled, although the company didn’t break out specifics. “We’re very pleased with our e-commerce and Frito-Lay, in particular,” Sankaran says. “We doubled the business last year and we’ll double it again this year.”
Today, PepsiCo. has about 200 full-time e-commerce employees, many of which were recruited from other companies outside of food and beverage making. “We started investing in this channel three years ago by bringing in talent from the outside,” Sankaran says.
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