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Blowing Up Pepsi


PepsiCo Americas CEO Massimo d'Amore has been rebranding Pepsi's core products top to bottom. Creative destruction—or just destruction?

In 14 years at PepsiCo (PEP), Massimo F. d'Amore has muscled through his share of tough jobs. In New York in 2000 he marshaled PepsiCo's successful takeover battle for Gatorade's parent company, Quaker Oats. In 2002 he boosted PepsiCo's sales and profits in Latin America even as the Argentine economy disintegrated. In the following years the Latin America operations grew faster than Coca-Cola's (KO).

Now, d'Amore (pronounced da-more-ay) is tackling his biggest challenge yet: shoring up PepsiCo's North American beverage business. While Americans consume nearly twice as much soda per person as any other developed nation (49 gallons a year), they are drinking less and less these days. According to John Sicher of industry watcher Beverage Digest, Pepsi shipped 1 billion cases of Pepsi in 2007, down 29% from 2000. In recent years, PepsiCo has looked for growth in the juices, bottled water, and fruity sodas consumers increasingly prefer. That helped the North American beverage unit boost profits 6%, to $2.2 billion in 2007, on revenues of $10.2 billion. But starting last year, as the recession deepened, sales of noncarbonated drinks began suffering along with soda.

Not one to fiddle in the margins, d'Amore has taken drastic action. His audacious solution: tear down and then rebuild PepsiCo's biggest beverage brands, which, besides Pepsi, include Gatorade, Tropicana, and Mountain Dew. And he is doing this all at once. D'Amore's ambitious agenda brings to mind the Obama Administration's theory that it would be a shame to waste a crisis. His calculation is that a more powerful and enduring Pepsi will emerge from this creative destruction. D'Amore is willing to try new things even if it upsets traditionalists. And rather than cherry-pick a few priorities, he has taken on seven brands.

Since becoming CEO of PepsiCo Americas Beverages 16 months ago, d'Amore has not been shy. Gatorade, Tropicana, and Pepsi, which had long operated as independent fiefdoms, have been jammed into one operating division. And he has put himself at the center of brand management—hiring and firing ad agencies, helping conceive TV commercials, and even editing them. His hands-on style has alienated veteran marketing executives, and since his arrival several have left. D'Amore concedes he may have bruised egos but says: "We needed to implement this change fast."

It's a risky strategy, and d'Amore, 53, has already stumbled, most glaringly when a consumer backlash forced him to scrap new Tropicana packaging. If he fails, his tactics may well have ripped apart a storied marketing department and made PepsiCo weaker. If he succeeds, he'll have strengthened a famous brand and made himself a contender to succeed PepsiCo CEO Indra K. Nooyi.

In the fall of 2007, Nooyi was wrestling with a dilemma. Since becoming CEO the previous year, she'd been selling PepsiCo as a growth company. But while Frito-Lay and the international operations were doing well, Pepsi, the name on the door, was in decline. She needed someone to shore up cola and take a hard look at other beverages found wanting. She had in mind just the man for the job: Massimo d'Amore.

Nooyi had noticed him in the '90s when she ran corporate strategy and he was chief marketing officer of the International Division. An engineer with a creative bent, d'Amore had both sides of the brain working. "He could look around the bend better than anybody else," recalls Nooyi. She figured d'Amore, an Italian, would see the U.S. market with fresh eyes, just as she had upon emigrating from India. "People who didn't grow up in [the U.S.] are students of this culture," Nooyi says. "It's almost like when you convert, you're more passionate about the cause because you converted." On Oct. 3, 2007, Nooyi and d'Amore were in Venice for meetings. During a break she asked him to walk with her in the gardens of the Hotel Cipriani. Would he run the beverages unit? she asked. Days later, d'Amore said he would.

UNIFIED APPROACH

When d'Amore settled into his new office at PepsiCo's Purchase (N.Y.) headquarters a month later, the global economy was starting to deteriorate. Some executives might have scaled back their ambitions in the face of the downturn. Not d'Amore. To save costs and give him the agility to make decisions, he wanted to consolidate his control of Gatorade, Tropicana, and Pepsi by forming them into one operating unit. Then he planned to refurbish the beverage brands he deemed promising. A series of brand extensions in recent years, he believed, had turned PepsiCo's beverage lines into a hodgepodge of products with no unifying theme. D'Amore wanted to bring a more cohesive approach to each brand.

Nooyi wondered if he should consolidate first and wait a year to rebrand everything. D'Amore, keen to put rivals on the defensive, assured her he could do both. Simultaneously unleashing multiple ads and designs, he argued, would captivate consumers and induce customers to place large orders.

D'Amore informally called his undertaking The Big Bang. It was an apt metaphor. He was proposing not just devising new ads and slogans for seven separate brands but redesigning 1,121 different bottles, cans, and other packages. And he wanted to have the reconceived products on store shelves in seven months to coincide with the 2009 Super Bowl, when PepsiCo was planning to unveil several new commercials.

Never had the company attempted to overhaul so many products so quickly. The danger was clear: In January consumers would walk into supermarkets and find that nearly all of their favorite PepsiCo beverages looked dramatically different—and they might hate the changes. What's more, d'Amore's team wouldn't have time for the exhaustive market research that usually helps mitigate such risks.

Companies often perfect each stage of a rebranding plan before moving on to the next one. For example, the design agency typically settles on a logo before handing off to the people working on the package. To save time, d'Amore decided to adopt the so-called concurrent model: design the logos, create the packaging, shoot the TV commercials, and so forth simultaneously. He acknowledges that this is riskier but insists the enhanced speed and agility are worth it. "Aiming for perfection is the enemy of good progress," d'Amore says. And if getting the project done in time meant inserting himself in the creative process—highly unusual for a CEO—then so be it. After all, he had marketing experience.

D'Amore wouldn't do all of this on his own. When he needed advice, he'd call on marketing and brand experts he had met over the years. They would help him formulate his thinking and provide outside perspective. D'Amore chose as a top adviser Manhattan branding guru Peter Arnell, whose Arnell Group is part of the advertising giant Omnicom Group (OMC). D'Amore had worked with Arnell before. Still, it was a controversial choice. Depending on whom you talk to, Arnell is either a genius or all sizzle and no steak. He has had successes, including the launch of the DKNY brand. And he dazzles clients with his erudition. But it has been years since he scored a hit, and his recent work, including a line of Muhammad Ali snack food for Mars, has fared poorly. D'Amore, who counts Arnell as a friend, defends his choice: "We value his ability to connect the dots."

One of the first Arnell-d'Amore productions was a TV spot for SoBe Lifewater, a beverage d'Amore wanted to reposition to take on Coca-Cola's (KO) vitaminwater. It was an early glimpse of d'Amore's management style. After giving the job to Arnell Group, he fired SoBe's existing ad agency, Bartle Bogle Hegarty. He and Arnell then cooked up the idea for the ad together—a sendup of Michael Jackson's Thriller video featuring lizards dancing with model Naomi Campbell. Later, d'Amore flew to Los Angeles to help edit the commercial.

Before long, d'Amore decided Arnell should help him get the cola business growing again. Pepsi needed to be more clearly defined, d'Amore believed. It should be more tied to pop culture, as it was back in the '80s when Jackson starred in Pepsi's commercials.

When d'Amore and Nooyi invited Arnell in to talk cola, no other Pepsi marketing people were present. Nooyi knew exactly what she was looking for. "The iPod is an elegant product people like to be seen with," she recalls telling Arnell. "I want Pepsi to be an elegant product people like to be seen with." Arnell was jazzed. "The objective was very, very clearly laid out," he recalls. "We needed to rejuvenate, reengineer, rethink, reparticipate in popular culture."

But how could they turn a can of fizzy sugar water into a design icon? Arnell and his clients decided to start by redesigning the Pepsi logo. One doesn't do such a thing lightly. The project needed a name: It was dubbed Breathtaking. And Arnell needed inspiration. After meeting with Nooyi and d'Amore, he set off on a five-week world tour of trendy design houses.

On the PepsiCo campus, meanwhile, d'Amore's shakeup was causing considerable sturm und drang. Insiders say some executives resented the boss's tendency to shut them out and instead rely on Arnell's counsel. One recalls feeling "d'Amoralized." Key people were leaving, including chief marketing officer Cie Nicholson and the head of Gatorade. Then, on July 23, 2008, came news that the economy was taking a serious toll on the division—second-quarter operating profit had fallen by 7%. The upshot: During the first two full quarters of d'Amore's tenure, PepsiCo's North American beverage sales were the weakest in history. "We have to retool and reteam," d'Amore told analysts.

Twelve days later, Arnell presented his new logo to a handful of executives at PepsiCo headquarters. Arnell gave one of his trademark performances. He traced his design not just to Pepsi's days as a local brand in New Bern, N.C., but to the touchstones of Western civilization: the golden ratio, the Parthenon, Mona Lisa's smile, Einstein's theory of relativity, and, of course, the iPod. He explained how his smooth new circle, which would replace the 3D look of the old logo with simple matte colors, mimicked the minimalist lines of Apple's (AAPL) music-and-video player. The logo's upturned curves, he said, were like emoticons: Diet Pepsi was a "grin," Pepsi was a "smile," Pepsi Max a "laugh." Months later the presentation would leak online, to be pilloried by bloggers as so self-indulgent that many concluded it had to be a satire. But d'Amore liked what he saw, particularly the smiles. "They brought humanity to the logo," he says.

But much remained to be done if d'Amore was going to make his deadline. With the Super Bowl just a few months away, he appointed three PepsiCo veterans to key positions. Ralph Santana, who headed Pepsi's sports and entertainment promotions, would run Pepsi; Frank Cooper III, a hotshot in charge of Mountain Dew—one of the few growing brands in Pepsi's portfolio—would oversee all carbonated soft drinks; and David A. Burwick, who had served as chief marketing officer earlier in the decade, would return from the International Division to be CMO of all beverage brands in North America. D'Amore says he had planned the promotions for a while as part of his reorganization. The replacements also came at a time when d'Amore's Big Bang was falling behind schedule.

Cooper, for one, saw the challenge clearly. "The main charge was simple: It was to get Pepsi into the conversation again within the culture," he says. "[But] the only part of the puzzle clearly in place was Arnell reinventing the Pepsi graphics." Burwick, the new CMO, concluded Pepsi needed a new "brand manifesto."

Cooper huddled with a brand consultant. Here's what they cooked up: "We're done being all things to all people," they wrote. "We are going to reach out to one very special demographic, the real you. The demographic of people who march to the beat of their own drum, who say no even when it's unpopular, who say yes even when it's an uncomfortable change, who change a hundred-year-old brand icon because the new one is simply more beautiful and fitting for our times."

Pepsi had its manifesto. Now it needed commercials for the Super Bowl. D'Amore was unsatisfied with the ads proposed by BBDO Worldwide, PepsiCo's agency of 48 years. And he wanted a bigger agency than Arnell's to handle the work. So he showed the manifesto to Lee Clow, creative director at TBWA\Chiat\Day, which already had the Gatorade account. A few weeks later, Clow presented his team's concept. D'Amore liked it enough to propose a showdown between Chiat and BBDO. The winner would become Pepsi's main agency.

The face-off took place in November at Calloway House, an old Colonial on the PepsiCo campus. In his presentation, Clow tapped into the Obama campaign. Proposed billboards featured words like "Optimismmm." Another showed people passing a bottle of Pepsi from one generation to the next. The tagline: "Every Generation Refreshes the World." Pepsi would sell youth, as it always had, but it would implicitly assure boomers they were still cool. A few days later, BBDO had its shot. D'Amore took a few minues to decide: Chiat had the gig. BBDO chief Andrew Robertson, who turned 48 that day, recalls: "I've had better birthdays."

By Jan. 15, Americans could see in stores the results of a hectic year's worth of work. Gatorade bottles featured a giant G, which PepsiCo hopes will become as iconic as Nike's (NKE) swoosh. SoBe Lifewater's lizard mascot was now larger. And big stacks of Pepsi cans and bottles featured Arnell's new logo. The response was mixed. Consumers hated Arnell's redesigned Tropicana carton, which included a cap that looked like an orange. After receiving mounds of irate letters, Nooyi decided to cancel the repackaging. Design critics said the Pepsi logo's "smile" would be lost on the average person. But the Pepsi Super Bowl commercial made USA Today's much-watched annual Top 10 list.

D'Amore and Nooyi say PepsiCo doesn't expect to see results until the second half of this year. So far the company says there have been glimmers of hope: Its surveys show consumers have become more positively disposed toward SoBe Lifewater, Pepsi, Sierra Mist, and Mountain Dew since the rebranding. Most promising, Pepsi has gained market share against Coca-Cola in the U.S., says Beverage Digest's Sicher. But cola sales still fell in the first quarter. And despite all the new advertising, Pepsi, like Coke, is losing market share to private-label brands. D'Amore is undaunted. "Breaking new ground is always controversial," he says. "Our opportunity [is] to change the rules."

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic network

Much Ado About...?

When a bootleg copy of Peter Arnell's proposal for the revamped Pepsi logo began circulating online, some viewers initially suspected that it had to be a hoax. The 27-page memo, complete with charts and diagrams, reads in some parts as if it were the work of a college student majoring in art and humanities, complete with references to the golden ratio and magnetic fields.

To view the presentation, go to http://bx.businessweek.com/pepsico-inc/reference/.


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