That's exactly what investors fear is happening. Nooyi has boldly changed Pepsi's strategy to emphasize nutritious, "good-for-you" products like Quaker oatmeal in addition to its "fun-for-you" (read: "bad-for-you") products like Mountain Dew and Fritos. The new strategy is visionary and clearly in harmony with societal changes. The trouble is that good-for-you products aren't nearly as profitable as branded sugar-water.
Nooyi's challenge now is to show that while she isn't backing off from her strategy, she hasn't forgotten how Pepsi makes money. At a major presentation to investors, she announced that the company this year will spend an additional $500 million to $600 million on advertising and marketing, mostly for high-profit drinks and snack foods. She admitted that Pepsi marketing, besides being underfunded, hasn't been all that good lately and said she's taking steps to make it better. She'll cut costs significantly, partly by laying off 8,700 employees. And instead of announcing an over-ambitious profit goal, as she has often done, she said profits would actually fall 5% this year. Nothing ambitious about that.
Irate investors have been calling for Pepsi to sell off its snack food business or for Nooyi to step down, or at least announce a likely successor. She did none of that at the presentation. Instead, by outlining a plan that will take two years to pay off, she showed that she has the board's support. But if that plan doesn't show clear signs of working before year-end, the board's support could evaporate. That's why the next several months are make-or-break for her.
All leadership crucibles are different, but in some ways many of them are similar. CEOs are always in the impossible position of serving conflicting demands, and sometimes they get the balance wrong, as Nooyi has done in shifting to a new strategy without sufficiently maintaining a lucrative traditional business. CEOs also get into trouble by acting too slowly, and Nooyi acknowledged she had done that.
"I wish we had stepped up our overall brand support, especially in North American beverages, earlier," she told investors. She added, "I also think some of the people moves that I made perhaps could have been made a bit earlier." She demoted the head of PepsiCo Beverages Americas only last September.
Nooyi's plan looks plausible, and investors seem willing to give it a chance; they pushed the stock down only incrementally despite the surprisingly downbeat profit forecast. Now she absolutely must execute the plan against strong and merciless competitors in a volatile economic environment. The heat is emphatically still on.
