Pepsi's Management Shuffle, Packaging Redesigns Are Distractions

| About: PepsiCo Inc. (PEP)

PepsiCo (NYSE:PEP) is one of the great American companies. On any given day, people are sitting down to enjoy a nice, cold PepsiCo beverage like Pepsi, Sierra Mist, Tropicana, etc. Maybe, in addition to their sandwich or as a quick snack, busy people of all ages are enjoying a bag of Lays potato chips, Fritos corn chips, Sun Chips, or any of the other popular snacks that Frito-Lay produces. So how is it that PEP, with some of the best known and loved brands in America, has failed to maintain market share and produce returns for its shareholders? Incompetence.

Since CEO Indra Nooyi took the helm at PEP in 2006, she has been a media darling, hailed as a visionary by world leaders and management consultants alike. Primarily, her vision was to transform PEP into a supplier of nutritional foods in addition to the snacks and soda that it was known for, as well as a leader in "sustainable business practices" (more accurately, how PEP business practices were affecting environments and economies around the world).

This led to investments in products such as Sabra hummus and sustainable farming practices in Latin America, as well as biodegradable bags for Sun Chips. It must be said that certain elements of Ms. Nooyi's vision are admirable and have merit. But, hummus? Underinvesting in core products such as Pepsi and Frito-Lay and diverting those resources to products such as hummus, which has been a niche product in the U.S. for years and will stay that way, is not, and hasn't been, the proper course of action.

However, my real beef with Ms. Nooyi (because the buck stops with her) is some of the ridiculously misguided attempts at redesigning packaging for absolutely no reason, most notably Tropicana. Tropicana orange juice has been around since 1947. There is no need to redesign the packaging, waste $35 million, revert back to the old packaging (which was a redesign as well) then redesign again, changing from cartons to plastic containers.

What managements such as PEP (and the consultants and marketers that they waste money on) fail to realize is that a) when it comes to mainstays such as orange juice, consumers don't care that you held a focus group which said the new design is better at this or at that. Consumers shop for milk, orange juice, coffee, and other staples of the supermarket isles in one way: they grab it and go. They know what the brand they use looks like, and they know where to find it. Leave it alone!

If the management was really smart and just had to change things, they would have subtly altered the carton to incorporate Tropic Ana, the mascot from old Tropicana ads, into the packaging, or something along those lines. Don't hold your breath for any intelligence on the management front.

Sure, this is a bit of a rant. I have been banging my head against a wall for the past 3 or 4 years wondering what in the world PEP management is thinking almost every time they make a decision. The sad thing is I could go on and on. Not advertising in the 2010 Super Bowl? That is money that should be spent.

Ultimately, all these missteps are squarely on Ms. Nooyi's shoulders. We will see what this management shakeup, as well as the recent announcement of $500 mil+ in marketing, mostly for core brands, will do. I must say that the recent Doritos/Taco Bell pairing doesn't look to be a good start.

As a conglomerate of brands, PEP is still in very good shape, and I will be combing through the 2011 10-K for glimmers of hope that management is the right track. If only Chester, the Cheetos cheetah, were running things, I might have more confidence.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.