PepsiCo, Inc. (PEP) Earnings Call Transcript & Summary

Hi, everybody. It's great to be here. My name is Sarah Pichardo. I'm from the PepsiCo Labs team. That's the tech venturing arm of PepsiCo. And I am here with my friend, Amit Ashkenazi from Tastewise and we're really excited to talk to you all today about building successful partnerships between corporates and the emerging tech space. And just to get everything started, I want to give you guys a little bit of a rundown on how we're going to run this show. So Amit and I, we're going to talk for about 20 minutes, a little bit about our process, the systematic process that we built within PepsiCo of identifying, piloting and scaling emerging technology and then also we'll have 10 minutes of Q&A. So if you guys have any questions, feel free to come up and ask us those questions. So I'll pass it over to Amit to introduce himself.

Thank you, Sarah. Thank you, guys. Thank you so much for being here. It's a pleasure. My name is Amit. As Sarah mentioned, I'm from Tastewise. We're a startup, headquarters in Israel. I'm based here in New York. And it's been a pleasure to work with the PepsiCo team for the past few good years. Since really the beginning of [indiscernible] actually focusing on a few different interesting use cases we'll talk about today. At our core, we use AI and generative AI to help make better, smarter, faster decisions for the PepsiCo organization. And of course, for all CPGs. In the food service context, it's really about identifying new opportunities and optimizing any activity that could be happening in this space itself as well as a lot of insights around what do consumers want to eat, what are the new emerging trends of consumers, consumption behaviors. So when PepsiCo does decide to launch new products, they know exactly who they're targeting, why they're targeting them and how they are going to consume it, in a world that the behavior of consumers becomes pretty different every day. I always joke that I can no longer track the new diets of the Gen Zers, but we do our best to try.

That's amazing. So today, what we want to talk about is building these successful partnerships between large corporations like PepsiCo, companies like Tastewise. And I think everybody here, if you're here at NRF, you understand the value and the importance of emerging technology, right? So we have so many different solutions that if you find the right technology, they can really help to accelerate your business, solve specific problems, cut costs and really help to give you a strategic advantage over the competition. But at the same time, you walk these floors and you see that there's just so much technology out there. There's thousands of different exhibitors today. There's thousands of different companies out there that you can work with. And it's really difficult, at least as a large organization, to know whether or not a solution is going to add value to your company or if it's going to distract. So that's one of the big problems that we're looking to solve within PepsiCo Labs in this process that we've been developing over the years. And then I think from a start-up, I know Amit, you probably can talk about this better than I can even. But as a start-up, it's also difficult to know what are the right corporations that you should be working with, what are the right partners to go after because you meet all of these different companies, and it's difficult to know who's who, right? It's hard to navigate that organization, and you can spend a lot of time having conversations that end up going nowhere, unfortunately, right?

Never happened.

Never happens, right? And so that is something that is both challenging and as a startup it's incredibly difficult because you do not have time at the end of the day, right? And so what we've been doing at PepsiCo Labs is we've been helping to create a systematic process to help to identify different solutions, highlight them and scale them. So we're going to talk a little bit about that, and then we're going to talk a bit about the use case specifically within food service and what we've been doing with Tastewise. So PepsiCo Labs, what we've been doing is we work very -- we focus very much on the specific problems of our business. So we work across the entire value chain of PepsiCo, everywhere from agro to manufacturing, to digital marketing, to food service, and we work with the business to identify and understand those specific needs that we have across the organization at one given time. And we're looking into what are we -- how do we identify those needs, how do we really put them down into words and then what we do is we take those, we put them into brief and we share them with our VC community. So we have over 200 different VC partners that we work with across the globe. And we will actually connect with those VC partners. We will work with them, we'll explain to them exactly what type of problem that we're trying to solve. And then from there, they'll send us recommendations. We also have other different scouting tools, other different research, different ways that we find other different technologies, events like this, NRF, meeting different solutions. We take all of those different solutions that are really pointed at those problems that we're trying to solve, and then we consolidate them. So usually, for each of the programs that we run, we'll have hundreds of different solutions. So when we were working with food service, we have hundreds of different solutions that we're looking at and Tastewise was one of those solutions that we looked at. And what we'll do is we'll introduce them to our senior leaders. And then from there, we'll decide which of those solutions we want to go forward with in pilot. And something that we've also focused on is not just the identifying, but also working through those details of making sure that we have the right teams engaged from the very beginning. So working with our IT team, working with enterprise architecture, understanding how these solutions are going to fit within the overall solution design of our tech stack. So that's something that we are also looking as very important. We make sure that we work with legal. So from -- when we first started working within the space, within PepsiCo Labs, we were working with legal, and we were starting to put some contracts in place with some of the start-ups that we wanted to work with, and legal sent us this 60-page document of a contract that we had to put in place. And [indiscernible] with 60-page contracts or like that this start-up is never going to work with us if we have this -- and so we worked with legal, we redlined everything. We kind of cut out the noise as much as possible, and we ended up shortening that to 8 pages, right? So these are the kind of things that our team, we try to do to really help make it as easy as possible to work with PepsiCo while mitigating risk. So we're looking at the very specific risks, understanding how do we really skim down this partnership, minimize integrations, minimize different things that would open up our company to some potential risks and make it easy to work with us. So that's something that we really focus on within PepsiCo Labs. And so I want to -- I'm just kind of giving you a little bit of a taste of the type of work that we do, but also we want to talk about bringing this all to life in the food service space. And so I mean, I would love to kind of learn from you and kind of hear from you, your perspective of when we started working together, something that I thought was quite interesting and something that I feel like you guys did a phenomenal job of is helping us think beyond the initial problem that we are going after. So when we first came to Tastewise, what we had mentioned is that we wanted to work on optimizing our digital menus. So we know that more and more consumers, more and more people are moving and ordering online. They're buying their beverages through the Uber Eats of the world, through DoorDash. And that's fabulous, but it's not as common for those consumers to also order a beverage when they're ordering online. And so this was something that we had recognized. We saw this as a big concern, a big issue. Food service is critical for PepsiCo for our business. That's where a lot of consumers are introduced to the brands for the first time, right? It's such a big part of our business. And so as we saw people moving towards -- moving away from in-person and going to these restaurants, this became quite a challenge for us. So we knew that we needed to optimize these menus. We knew we needed to do something within this space, but it was actually quite challenging to understand kind of where do we start. And so when we had this conversation with Tastewise whilst we were going through the scouting process, actually, Amit was the one that came to us and helped us realize just the challenge that we had. And so I wanted to pass it over to you, how you explained and a little bit more about that.

Bring good memories, I have to say. So I wanted, first of all, to start from Sarah referred to in terms of the -- comes from the corporate place, but also from a start up place, you come in and you know you have maybe the best technology, the best people, you're very agile. You're coming to the organization, but you have to have that person within it that understands the business better than you. Because I can adapt and I can do a lot of these things. PepsiCo Labs is a partner and as a service for these start-ups really made it successful. So this partnership is really 2 way, right? Because again, you as a start-up want to be the best provider you could, but there are some things may be out of your control. It can be the legal example, which was fun, and we went through that. But more than that, how do you help really identify the use cases itself. Where is your ROI? Where do you become valuable for the business? Because it's very broad, especially to begin with. And throughout the screening and pilot process, that's a lot of this work that happened. And PepsiCo Labs really, I think, helped both sides, PepsiCo and the business people, but also the start-up itself. What is the value that you bring. It should be very simple, very easy to prove and then you go from there. So really, if I'm looking at even the header of our topic today, really the highlight of what I remember from this process has been this. And of course, now we want to drill down a little bit in terms of what we are able to create, which is very interesting. So let's talk about food service for a second. We're here in the -- it's a retail show. But there's a reason there was a food service innovation center or innovation zone, sorry what's that work. The reason is, is that because food service, pre-COVID, post-COVID, we all understand how big the opportunity that lies within this segment. I will run a survey around the crowd. How many of you guys have, I don't know, Uber Eats and DoorDash and Grubhub, all of your phones, and you have tried more than those over the past year, the numbers are growing increasingly and dramatically. However, the data that exists behind that historically has not been as, let's call it, clean or being able to be as granular as retail. Retail was king, still is the king. You can do any slicing and dicing that you can. But what happens when you have told that these consumers going delivery platforms, again, pre-COVID definitely post, and you're not sure how to even leverage those. And there was really an infinite amount of use cases that exist under that. And we would like to share with you maybe one today. So it actually started with a conversation or a phone call that we made. So imagine the following interaction that we called a restaurant -- we said, "Hello, I'd like to order a dish -- a meal and I want to add Pepsi to my beverage." And then the person on the line says, "okay, sure. What's the problem?" And we said, "I'm on Grubhub, I just don't see Pepsi there. But I know you have Pepsi because I saw it on DoorDash." And then they say, "that's weird. So just go on DoorDash." It's like, "no, I don't want to. I have my Grubhub thing all over. I want to stay in Grubhub." And then they told us the following: "just order the miso soup instead and I'll refund" like put in the notes, it's probably the same cost, "order the miso soup and I'll replace it with a Pepsi." That's what we call the menu gap. Menu Gap is a new problem that really did not exist a few years ago. Menu gap means that you sell your product to this operator to Sarah's bistro here in Queens, but you will only offer your products, your Pepsi products plus one over the multiple encounters that you have. So think about the opportunity that exists as the consumer comes in and they want to order your product. They really already are there, you just need to make sure that this exists. And of course, they don't need to order the miso soup to replace it. So that ability alone, we work with the Pepsi Labs to understand, okay, so first of all, it's a new problem. It's a new problem that did not exist. How big is it? Right? How significant is that problem? And the more delivery platforms become, of course, popular and the more the data becomes available, you're able to use the AI and the generative AI and well, even say sometimes buzzwords, but you're using those to click or to search and instantly understand that there are actually thousands of these gaps that exist. So thousands of your menus that today doesn't necessarily offer your full variety of products. When we speak about optimizing digital menus, optimizing revenue, this is possibly the lowest hanging fruit that you can imagine. Simply make sure that when your consumers are going, you're actually seeing those. And actually looking at our numbers again with the PepsiCo Labs, getting their guidance of, here is what we should highlight to the business, because that's what's going to make them move inside this huge corporation, that has been proven to be really an amazing success and a pleasure. And from there, it's really only the beginning because you can really think about additional use cases that you can speak about and how to leverage this information. So we start with the data that you have, yes, being able to look into those single location, harmonizing multiple and millions of menus at a click away, but then you're going to ask yourself, again, what will that deliver to the business? And how are you actually -- in the execution phase, actually are going to optimize it? Are you going to send an e-mail to these locations? Are you going to call them? Are you going to physically visit them? Very valuable tangible questions that you have to make sure you address the support from an ID engine of the use case, executing it, but of course, measuring your success all throughout. All of these are crucial, crucial steps to start and then grow from there in providing this new type of technology and serving this what we call even, again, a neglected child of the food service that is growing so much, but the data that we have there is not even close to what we had before, critical to capitalize on that.

No, I totally agree. And I think that like you've mentioned, this is just kind of step 1, right? So working with you all, finding the right technology is just 1 step. But the next is actually helping to mobilize the organization, right? Making sure that we're actually executing. So that's something that we work with some phenomenal partners with our food service team. So we're PepsiCo Labs. We kind of help to identify the technology, but we partner hand-in-hand with the business to actually execute and solve these problems together. So we've been working with them to really understand. Now that we have the insights and we know what do we need to address? How are you going to address that? So what can be covered via e-mail? How do we have -- how do we work with our food service reps? What are the different execution ways that we can actually now go and optimize these menus? How do we work directly with the customers? How do we mobilize the right teams, the right change management strategies. So what we've done is we've really helped to work with the teams on building out those playbooks, so that we can have a very clear execution strategy as we start to move through and really address this problem. So making sure that we have the right playbooks, have the right comps, have the right people involved, the right governance, all of those different stats is absolutely critical to take what we see as a huge opportunity and actually bring it to life because just identifying the problems is step 1, but actually making it -- helping to solve those issues and really generating the value across the organization is what's so important. So we've been working with digital labs within the food service team. We've been working with our food service strategy teams. We've been working with a number of our food service teams across all the different divisions to help make this happen, to help execute this at scale. But there's also -- go ahead.

I just want to give you a quick again, maybe tip to the start-ups maybe out there. So as Sarah mentioned, like you are identifying, executing and measure. You maybe thinking you're playing only in one, the more you become a trusted adviser to the organization, the more your value goes up. The more you're able to be a really trusted adviser, like we'd like to say, more than just a vendor. In our case, to Sarah's point, we were looking at the problem, understanding the value, understanding how big it is, how big the ROI can be, but then asking ourselves, okay, what is the optimal execution? Is it working with the food service reps? Is it an e-mail? When you are then able to say, and again, we have a few examples from other partners, Upfield is another company that we work with on an e-mail campaign. So I'm guessing you all get outreach e-mails. I'm guessing you love those. But you can definitely be sure that when somebody is targeting you in the tech space, they know a lot about you. They know where you work, where you worked or maybe whenever you grew up. Sometimes it's a bit scary. But that method of segmentation is not being implemented enough in food service. So when you are segmenting food service operators, you know a lot about them in a very similar manner, leverage that, leverage menu signals to talk to them about what they want. So if you're talking to a burger place or a vegan place, you might as well speak differently about anything, because your conversion rates, your reply rates, everything will go up. So if you come to your partner with those learnings from the business themselves, how do you leverage this type of information that exists? And it really is there to optimize even your execution, again, not only the identification, execution as well. This is invaluable learnings. They are able to really harmonize and again, vice versa, PepsiCo are coming to Tastewise and say, what about this direction? What about this problem? And we maybe have sometimes too much. But have you thought about identifying this? Have you thought about thinking new way and then you're able to adapt as well? So it really is that 2-way street to build that partnership, you bring in whatever you learn from the business because they do want to learn and they're able to teach you about their business and about really the optimization of those.

Yes. And I think that's what's still amazing about the partnerships together, right? Because there are certain companies out there within the emerging tech space that know this business so well. I mean, Tastewise, you guys know food trends. You guys know what's happening across these digital menus. I mean this is what you live and breathe every single day. right? And so how do we tap into that amazing technology and really bring that into organization to maximize the value for PepsiCo as well. That's something that's so important, so critical. And this is just 1 of the use cases, right? So we have a number of other use cases, other projects that we worked with, with Tastewise. We've actually been working with them for a number of years. We actually started with them with actually a separate use case in the insight space. So actually, I don't know, Amit, do you want to kind of quickly walk through that -- about that use case, and then we'll open up for some Q&A.

Sure. Sure. So again, whatever is more relevant for you guys, feel free to ask afterwards. But the same notion or premise that consumers in the food and beverage space today simply expect more, right? Even our discussion about sustainability, again, let's think about NRF 5 years ago or 10 years ago and all the trends that emerged, how well are we set up for success in meeting our consumers where they are. The insights of the starting of the PepsiCo partnership was actually more about that. I'm developing even a new, let's take Quakers as an example, right, of oatmeal. Today, maybe it's being eaten for breakfast or is it? Where else is it being consumed? How is it being consumed in what way, in what occasions, which food service manufacturing are opting on that? And which maybe Michelin-starred restaurants are starting to adopt certain product, a certain diet, a certain health need in different ways. The reality is that consumers are expecting more in any way, shape or form. They expect more and how the food is being sourced, right? of farm to table and sustainability, but they also expect more in terms of the actual health benefit that they expect. They expect it better. So when all of these CPGs out there are trying to meet their consumers, they can no longer be surveyed. There can no longer be a focused group of people sitting around the table and I can ask them, where would you like to see this product or which of the following diets would you want to follow? Let's use the technology, again, to get closer to our consumers at a click of a button. So when you have a question about what would they want, that would also become an easy granular executional phase. And that can come from food service, of course, single locations, innovation that's happening, very fast. It can also come from social media, right, of the TikToks of the world. So even if we are not there, our consumers are there. So we at least have to track the information to understand where the food trend is going. So that was like the use case that we worked with PepsiCo, a lot of interesting different type of examples, but very much also inspiring ones to only name a few, to say that.