ANCHOR UP: Pepsi's second-largest bottler acquires contiguous mass-and leadership-to prosper through the 21st century.

By Havis Dawson
April 15, 2001

In the second half of 1999, Pepsi dubbed four bottlers its US anchors and charged them to lead industry consolidation. In the second half of 2000, that anchor field was winnowed to three, as Whitman Pepsi General (anchor No. 2) and PepsiAmericas (No. 3) merged.

For everybody whose eye for consolidation was trained solely on anchor No. 1-megabottler Pepsi Bottling Group-the merger was a thought-provoker. Maybe the blue parent was serious when it indicated with its multiple anchor appointments that Pepsi's US bottler consolidation wouldn't be as...consolidated...as that of its red and white counterparts.

Because this second-largest-in-the-system bottler is plenty big enough to be a long-term player: 380 million domestic cases, nearly 20 percent of US Pepsi volume. Too, PepsiAmericas (as the merged bottler was named) has a sizeable foot firmly anchored in two overseas markets-a global-ready claim that Pepsi's biggest anchor can't make.

Like many other assumptions about the soft drink business now being reexamined, the inevitability of a single US bottler per system isn't a rolled-up certainty.

For comparison: The dropoff in size from Coke's No. 1 US bottler (Coca-Cola Enterprises, with about 75 percent of US Coke volume) to its No. 2 (Herb Group, with 6 percent) augurs a likely eventual CCE solo. Similarly, No. 1 independent bottler DPSUBG's annual revenue ($1.9 billion in 1999) dwarfs that of No. 2 All-American ($246 million in 1999).

Some comparisons of PepsiAmericas to CCE are apt, perhaps. As in the 1991 CCE/Johnston merger, the smaller bottler's top execs took some top slots at the new, bigger entity. But Bob Pohlad, erstwhile CEO of the former, smaller PepsiAmericas and now CEO of the merged, bigger PepsiAmericas, describes that the more pertinent parallel is with the local focus the top Johnston exec nurtured at mighty CCE.

"Because of his career path up through the business, Henry Schimberg brought to the helm of CCE a real street-level understanding of the business," Pohlad notes, "both in the importance of the customer and the importance of dealing through the organization on a market-by-market basis. Our management team has a similar grounding. Larry Young (president and COO of international operations), for instance, rose through the independent system in the central part of the US, truly learning the business from the ground up. Ken Keiser (president and COO of domestic operations) came up through the operating side of the Pepsi-Cola system."

Keiser's quarter-century of bottling experience kicked off in 1976 at what was then Pepsi-Cola Metropolitan Bottling, precursor to the "first" PBG, Pepsi's company-owned bottler. After 14 years there, Keiser moved into Pohlad's operation.

"One of the greatest changes we've instituted in the new PepsiAmericas is to restructure in a way that our sales general managers can focus on the marketplace, and not get bogged down in various support functions," Keiser describes.

The structure-refined over many years at the "old" PepsiAmericas and its precursors-replaced Pepsi General's general manager structure with a functionalized reporting structure, in which "support" functions such as manufacturing, fleet, real estate, finance and human resources report directly to a senior VP at PepsiAmericas headquarters.

"That meant we could streamline job roles and accountabilities" [in the field and regional offices], says Keiser. "So rather than a laundry list of things you're held accountable for, you have three basic accountabilities: 1) P&L performance measurements, 2) growing our business, 3) organizational capability. We've taken away many of the myriad details that take time away from actually building the business."

"This functionalized structure works for us because we've been able to maintain a management group that's sufficiently small and lean," says Pohlad, "and because the personalities and experiences of our management teams are compatible with what we're trying to accomplish. We've never run into the kind of 'turf' issues that can sometimes develop in a functionalized approach to management."

"We recognize there's more than one way to be successful in this business," Pohlad acknowledges, "but this way works very well for us."

Team of experience
PepsiAmericas' broad team of bottler execs possess deep experience and similar career goals. All together, Keiser's six direct-reports-SVPs of sales or operations, five of whom came from Pepsi General-boast 100 combined years of bottling experience. "And there's a similar depth of bottling experience throughout the organization," says Keiser.

Like Keiser, CEO Pohlad's bottling experience reaches back 25 years-even more, if one counts dinner-table conversations with his father Carl Pohlad, an entrepreneurial banker who led in the first wave of Pepsi-bottler consolidations that began in the late 1960s.

Pohlad Senior had acquired Pepsi's Minneapolis/St. Paul franchise and combined it with the Tulsa, OK, franchise-then filled in geographic gaps down the center of the nation. In 1973, Pohlad executed a three-way merger to form publicly held MEI, then Pepsi's third-largest bottler.

Industry veteran Phil Hughes managed MEI from Tulsa for Carl Pohlad, as the bottling company added territories flung as far as Oregon, and as recent college grad Bob Pohlad bought TV and radio time in Tulsa and northwest Arkansas for MEI's marketing department. After Bob's five-year stint there, Hughes sent young Pohlad to run the Portland operation as its general manager. "He did a superb job," Hughes recalls. "He just gobbled up the experience, because he loved it." Bob's performance was suitably superb that he was tapped MEI's northwest regional manager.

In 1986, MEI was sold to the Pepsi-Cola Company, which rolled it into its company-owned bottler. But the Pohlad family retained some privately held Pepsi franchises in the Dakotas, and in 1988 the family separately acquired Mid-South Bottling Company (renamed Delta Beverage), a collection of near-bankrupt Pepsi franchises in and around Memphis and New Orleans. "Mid-South gave us our baptism of fire in operating in high-share Coke markets," Pohlad recalls. "Prior to that, our experience had been in territories either at parity or in Pepsi heartland."

In 1998, the Pohlad managers acquired Pepsi Puerto Rico, and in 1999 the three groups-Dakotas, Delta and Puerto Rico-were merged into the first company

to bear the PepsiAmericas name. Late that year, the closely held company picked up Pepsi's Jamaican bottler, Desnoes & Geddes.

Meanwhile, Bruce Chelberg, chairman and CEO of Chicago-based Whitman Pepsi General-a bottler nearly five times the size of Pohlad's PepsiAmericas group, and one that had slimmed its business from a conglomeration that included non-drinkables like mufflers and refrigeration-eyed retirement. Chelberg sought a top manager experienced in bottling.

And that's where this story started. In late November 2000, Whitman Pepsi General and PepsiAmericas merged to grow into the third major US bottler on the New York Stock Exchange-the third-largest bottler in the world.

"Our acquisition opportunities are to grow in and around the territory in which we currently operate," says Bob Pohlad, "which [in the US] means through the central part of the US from the Canadian border down to the Gulf of Mexico. Independent Pepsi bottlers there generally have owned their businesses for a long time. They've been very successful and they're important to the way the Pepsi system has evolved over the last 50 years. As they watch the industry evolve and they see retail customers consolidating, and as they see greater and greater investments required in other parts of the business, these bottlers have to make decisions in how they see themselves being able to compete. One possibility is that they see the value of their company is now quite high, and they want to take advantage of that. We hope that's the decision they come to. But we have no way of speeding that up."

Asked whether PBG is likely to ultimately stand alone among Pepsi's US bottlers, Pohlad describes, "I suppose the reason some people foresee PBG being the only Pepsi bottler is because they look at the Coke system and see that-long term-CCE looks to be probably the only US Coke bottler to remain. I don't know that Coke's experience really has any bearing on the direction the Pepsi system will go. Certainly, nobody knows what will happen in the future, but Pepsi has been very encouraging of a multiple anchor strategy.

"As we look at our PepsiAmericas business, we have every expectation of growing and of continuing to be a dominant player," Pohlad continues. "Our strategy does not include doing this for a few years and then being acquired into the PBG system. We have plenty of opportunity for growth. We have the scale we need. We have a very good management team, with similar career horizons. Combine those things, and our long-term prospects as an independent public company are excellent."

 
Back to top.