Pepsi-Cola Bottling Co. of New York - Bottler of the Year

Pepsi-Cola Bottling Co. of New York — Bottler of the
Year
By SARAH THEODORE
If you can make it in New
York, you can make it anywhere, or so the song famously tells us. That
might be especially true for those who sell soft drinks in the Big Apple
— after all, where else will you find such diverse consumer
populations, cutthroat competition, and even the possibility of millions of
dollars in parking fines just to deliver product?
The Pepsi-Cola Bottling Co. of New York not only has
made it in the big city, but it has enjoyed sales growth in the high single
digits despite an overall flat soft drink category, and it recently took
over as the share leader in that market. The company boasts one of the
highest bottle and can growth rates in the Pepsi system, and had more than
five million cases of incremental volume growth during the past year.
Pepsi New York President and Chief Executive Officer
Bill Wilson credits the company’s execution strategy and its
partnership with PepsiCo — especially the commitment to innovation
— for its growth.
“PepsiCo leads the league in big brands and big
brand-building,” he says. “Today, 90 percent of our portfolio
is PepsiCo products, and 90 percent of our growth in the past decade has
been from products that didn’t even exist [10 years ago].”
For Pepsi New York, that innovation has allowed it to
accommodate many consumer preferences, a definite plus in an area where
product preferences are as wide ranging as the population.
“We were very much a carbonated soft drink
company for a lot of years and still are,” Wilson says. “But
the reality is, after this year, more than 50 percent of consumption will
be in non-carbs. It was critical for us to be part of PepsiCo’s
innovation because they were able to bring in products like Gatorade,
Aquafina and strategic alliances with Starbucks and Lipton Tea.
“If you look at New York City historically, it
has been a very strong market for regional players like Snapple, Arizona
and Poland Spring,” he adds. “We had not been competitive in
that realm. We always had the No. 1 or No. 2 products in the CSD area, and
now, with the advent of our new products, it’s given us the impetus
to grow faster than the marketplace.”
The New York bottling operation covers the five
boroughs of New York City, plus Westchester County. The business is part of
the Honickman Group, and was purchased by Harold Honickman in 1984. In
total, it includes two bottling facilities and six distribution centers,
with a seventh in the works. The company carries more than 250 SKUs, which
also includes products from Cadbury Schweppes North America.
One account at a time
Pepsi New York has chosen a unique route to market and
it believes that has been another important element of its success. It has
teamed with 133 independent distributors who are responsible for 250 of its
300 distribution routes in Manhattan, Queens, Brooklyn and the Bronx.
Staten Island and Westchester operations are company-owned. While it is not
a commonly used method, the company feels working with distribution
partners rather than handling all of its sales with in-house personnel
creates a more effective system.
“Many bottlers would probably not use the model
because, if you look at the migration of the business, it’s been to
large box stores, Wal-Mart type outlets,” Wilson says. “If you
look at New York, that hasn’t been the case.”
Much of Pepsi New York’s business is based on
up-and-down-the-street sales, and the company feels its distributor network
gives it an edge through personal relationships with store owners and
managers and in-depth knowledge of the city’s diverse neighborhoods.
“We have a much greater advantage hitting the
smaller type of accounts, up-and-down-the-street businesses,” says
Michael Buonassisi, vice president of sales and marketing. “In other
markets, you make one call and you impact 250 or 500 stores. We don’t
really have that. It’s all one account at a time.”
Wilson adds: “You will find most of the
distributors have been in the business for multiple generations. They
create a continuity and trust with the retail customer, which is extremely
valuable.”
“A lot of the cost drivers today are managed by
them, which gives them a great incentive to grow their business a lot
quicker than the rest of the world,” he says.
The company conducts monthly meetings with its
distributors to gauge the effectiveness of promotions and execution and
says it provides valuable insight into the marketplace. “I always say
that I learn more from that monthly meeting than I do during the rest of
the month because, in my mind, they are on the frontline, closest to the
customer, the true cola warrior out there,” Wilson says. “They
don’t hesitate to let their opinion be known and I think we all learn
a great deal.”
Managing the mix
Pepsi New York’s unique retail channel mix,
which emphasizes small outlets far more than super centers, means its
product lineup also differs a bit from bottlers in other areas. Smaller
“banner” stores make up 53 percent of its food business, and
single-serve cold drink and 2-liter products, as opposed to multipacks, are
among its top sellers.
When its competition moved from 2-liter to a 1.5-liter
package in 2004, Pepsi New York used the change to its advantage, focusing
on the package as a value size. In fact, it says it has one of the largest
2-liter markets in the country.
“As an example, by maintaining the value
platform on 2-liter, we were able to capitalize on the fastest-growing
segment, which was the 99-cent store concept, where we sell our
2-liters,” Wilson says. “That’s about a million-case
proposition.”
Pepsi New York says it is grateful for the broad range
of product offerings it has, thanks to PepsiCo and Cadbury’s
innovations. But it also has become astute at knowing which products to
offer in which neighborhoods, and not trying to force products where they
don’t belong.
“We think one of the No. 1 success factors going
forward is mix management,” Wilson says. “How do you take the
diverse portfolio that we have to the diverse channels that are out there
and do it profitably? You have to be sure you have the right products, and
that what you generate is providing value to the consumer.”
Frappuccino, for example, is popular in Manhattan,
whereas Tropicana flavors rule in the Bronx. New York City, overall, has
one of the largest diet markets, as a percentage of mix, in the country,
the company says, but in certain ethnic neighborhoods, diet promotions may
be less effective than flavor promotions.
“[New York] is very diverse by borough,”
says Scott Allmers, director of sales and marketing. “Manhattan
compared to Westchester compared to Brooklyn are completely different in
the way they’re made up. You’ve got to think of it differently
in terms of your marketing.”
To that end, the company uses a variety of marketing
tactics, executing larger programs created by PepsiCo, as well as
developing channel-specific, and sometimes customer-specific, marketing.
The company partners with neighboring Pepsi bottlers such as the Pepsi
Bottling Group, to ensure they speak with “one voice” in
complementary accounts. The bottlers work together through a retail trade
committee to make marketing programs appear seamless from one territory to
the next.
Within its own territory, Pepsi New York counts on its
distributors to execute its promotions in the marketplace. “A lot of
the new products and brands we’re introducing are very
channel-specific, cold-drink products,” Buonassisi says.
“It’s critical that we have the right programs in place and
that we align with the distribution system and make sure that those folks
are really engaged in what the objectives are.”
The company profits from PepsiCo’s sponsorship
of Major League Baseball through promotions with the New York Mets and
similar national sponsorships that can be applied on a local basis. It also
has “prestige accounts” that offer exposure as well as sales
opportunities. Pepsi, for example, is a sponsor of U.S. Open Tennis, which
falls within Pepsi New York’s territory, and is broadcast throughout
the country. It also covers such high-profile accounts as Grand Central
Station, Coney Island, the Bronx Zoo and the New York Aquarium.
“When you can get into the U.S. Open and Grand
Central Station and Shea Stadium, you’re creating millions of
impressions,” Wilson says.
“It helps your business tremendously because
along with presence comes respect,” adds Thomas Triglia, director of
on-premise sales. “Not only does it take care of the business we have
here, but it builds on tourism in New York. Wherever people gravitate, the
presence is there and the impressions are there.”
The next big idea
The soft drink industry thrives on new products, and New Yorkers thrive on being the first to try anything new,
so a large part of Pepsi New York’s focus is new product
introductions. “When we do our annual operating plan, the first
question and the last is ‘What is new this year?’” Wilson
says. “With so much of our growth being driven by innovation,
we’re always looking for the next big idea.”
He says PepsiCo’s commitment to innovation has
benefited all parties, and helped the companies move from a
“transactional relationship to a partnership based on mutual
risk/benefits. They have skin in the game and we have skin in the game on
all decisions.”
But innovation comes in all forms, not just new
products, and for Pepsi New York, innovation also will include a new
state-of-the-art bottled water line to be installed at its College Point,
N.Y., plant this year, and continuing improvements to information
technology.
“The water line will be the biggest capital
investment in the short term,” Wilson says. “What’s also
important, along with the go-to-market strategy and the operations
strategy, is managing the information flow — how do you manage the
mix, what is the right product at the right
time? Upgrading our handheld technology and adding software enhancements
have been important.”
As owners, the Honickmans have a policy of reinvesting
profits into the business, which allows it to make such investments, Wilson
says. “Our capital expenditure is probably two times the industry
average, which allows us to invest in infrastructure and cold drink equipment.”
He adds that the Honickman management philosophy is to
empower each of its divisions to run their businesses effectively, and
feels that has been key to retaining management at the bottling company.
“Anyone here has the skill set to go work in a Fortune 50
environment, but has chosen to make a commitment to the Honickman
enterprise and build their careers here,” he says. “That kind
of continuity adds a lot of value in customer relationships and commitment to the community.”
As far as consumer trends in the coming year, Pepsi New
York is counting on the continuing popularity of its carbonated brands,
pointing out that the buzz about non-carbs often overshadows the success of
some CSD brands. The company says carbonated line extensions such as Wild
Cherry Pepsi, Wild Cherry Diet Pepsi and Pepsi Lime have been very
successful in its market. Its Fridge Mate 12-pack business also was up 16
percent through the end of last year vs. 2004.
“The consumer shift is on and part of it is the
‘graying of America’ — people are getting older so they
will drink more non-carbs,” Wilson says. “But there still is,
especially in New York City, a multi-cultural environment. You will have a
lot of individuals moving to New York who probably have a younger profile.
We think managing the ethnic mix gives us lots of growth. We’re very
bullish on our core business.”
Pepsi-Cola Bottling Co. of
New York operates two bottling plants and six distribution centers to serve
the five boroughs of New York City and Westchester County. Its largest
plant, which produces 23 million cases a year, is located in College Point,
N.Y., and the second, which comes in close at 22 million cases per year, is
in Brooklyn.
The College Point facility is three years old and
serves as the headquarters for Pepsi New York, which moved several years
ago from the historic Pepsi plant in Long Island City, overlooking the East
River. While the famous Pepsi-Cola sign still stands, the Long Island City
facility ceased production to make way for residential property. The 20
acres of land in College Point house both a plant and distribution center
as well as the headquarters offices.
The bottling plant features six production lines,
running everything from cans and 10-ounce bottles all the way up to 3-liter
PET bottles. Its most in-demand line is its high-speed 20-ounce line, which
fills 1,000 bottles per minute. That line, along with the plant’s
2-liter filling line, often runs 24 hours a day, six days a week. According
to Robert Sherman, vice president of operations at Pepsi New York, the
20-ounce line is not only fast, but energy friendly as well.
“This line is very energy efficient,” he
says. “We are filling at almost ambient temperature, so it saves a
tremendous amount of energy. ”
Both the 20-ounce and the 2-liter lines feature
multiple labelers to ensure constant operation. “If one goes down, we
can keep the line running,” Sherman says. “With those two
lines, we just can’t afford to be down.”
The facility currently produces carbonated and
non-carbonated brands, but a new bottled water line is planned this year
for production of Aquafina. The installation will include a new water room,
water treatment system and lab to serve that line exclusively.
Because the territory has such strong single-serve and
cold-drink sales, the College Point operation features an in-house vending
maintenance center that services the 40,000 pieces of vending, fountain and
visi-cooler equipment it has in the marketplace.
“We’re seeing tremendous gains when we
place glass-front vendors in the market,” says Pepsi New York
President and Chief Executive Officer Bill
Wilson. “They are another example of pushing the availability
envelope. In the short term, the cost may be a little higher, but it pays
for itself very quickly.”
With 50 technicians working in the center, the
facility is equipped to repair equipment, replace parts and refurbish
machines before they head back into the field. It even features a
state-of-the-art paint room that could, conceivably, be used to paint a
car.
Located a short distance from the bottling operations
in College Point is the company’s largest distribution facility. The
building is historic in its own right, having once served as an airplane
manufacturing facility for the military during World War I. The center
services about 100 of the company’s 300 distribution routes, and
ships as many as 10 million cases a year.
Warehouse capacity is approximately 500,000 cases,
which includes carbonated soft drinks and non-carbonated products. The
facility is responsible for loading trucks for Pepsi New York’s
network of independent distributors, which means mixing pallets and loading
each truck to the specifications of the owner. Some of the distributors
operate on a pre-sell system, while others prefer to load the truck with
what they expect to sell the next day. Most provide diagrams of the way
they want the trucks set up, and warehouse personnel will load product as
needed.
Each end of the warehouse has the major products
arranged in mirror image to reduce travel time from one end of the
warehouse to the other, increasing efficiency. Minor products are placed in
the middle for both ends to select from.
PepsiCo’s focus on new product innovation
requires the bottling company to constantly evaluate its bottling and
warehouse operations to ensure they are keeping up with the number of SKUs.
For example, a new distribution center in the
Bronx is on the docket, with a planned 200,000-square-foot warehouse to
take the pressure off of other facilities.
“We’ve invested and continue to invest on
a long-term basis, in our facility,” says Mark Johnson, vice
president of finance. “It’s part and parcel to the
innovation… you have to step back and see what it takes up in
operations space and pallet positions. You need incremental space. You need
to address that side of innovation as well.” BI
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