MUMBAI: Pepsico has long been associated with India’s food service industry, ever since the beverage brand entered India in the 1990s. Amidst inflationary pressures and a tough two years of pandemic notwithstanding, PepsiCo’s India biz in April 2022 reported a double-digit organic revenue growth in the first quarter. The company is well-positioned to adapt and execute in a “challenging operating environment”, having enhanced its focus on productivity and “sharpening its revenue management capabilities”, Pepsico stated while reporting its earnings recently.
With the pandemic fuelling a paradigm shift in consumer behaviour aided by digital acceleration, and customers preferring doorstep food delivery over dine-in services, the food service industry has been witnessing an upheaval in the past two years. Several restaurants are looking to shift from a traditional dine-in facility to set up a delivery-only cloud kitchen model. On the sidelines of the National Restaurant Association of India’s (NRAI) cloud kitchen convention held recently in Mumbai, Pepsico India beverages director of Organised Trade Channels Shailee Tyagi spoke exclusively to Indiantelevision.com on how the beverage major has been making a difference in the evolving food service ecosystem in the country. She also weighs in on the restaurants vs food tech platforms ongoing dispute and offers her insights on the tussle.
Tyagi has been a Pepsico veteran with twelve years of experience in channel sales and strategy. She was also the driving force behind the #Pepsisaveourrestaurants campaign with NRAI and Swiggy, to support the restaurant workers when the first covid pandemic wave hit in 2020.
Edited excerpts:
How did the food service industry, on the whole and Pepsico India beverages fare during the two successive pandemic waves?
We launched a Covid assessment report for the foodservice industry along with the NRAI last year, and this was commissioned to Technopak. The insights that came out of the study was that the industry shrunk by 55 per cent in terms of revenue. So, it was a 4.5 lakh crore business with services that shrunk to less than two crore- that was the impact. About 2.5 million restaurants shut down completely- largely the ones unorganised, who do not have the muscle to survive a pandemic like this. And, of course, millions of people lost their jobs.
Now coming to beverages and us as a company- In the beverages industry, out of home consumption(we refer to outdoors eating as an “out of home” occasion) contributes to a big chunk of our business. For the overall category, it would be nearly 50 per cent. The OOH food service is a part of our growth model for PepsiCo globally. And it is expansive- not just restaurants, even cinemas, airports, airlines all are part of the service. We have built a very strong portfolio which caters to food service requirements. Suddenly, when that shut down, and that too happening in summers, which’s the peak season- you can imagine the upheaval. Unluckily, both the times we lost two summers due to Covid. And those three to four months account for almost 60 per cent for the category. As for the food service industry overall, they lost almost more than 50 per cent of their revenue.
What was the #PepsiSaveOurRestaurants campaign with NRAI all about?
The #Pepsisaveourrestaurants is a campaign very close to my heart. It came about at a time when the unthinkable and the unprecedented lockdown happened during the first wave- which was the worst from the viewpoint of the food service industry. We have a huge ecosystem of restaurant partners, and all of a sudden the restaurant workers were out of their livelihoods. There was so much uncertainty looming. So, it was time to really reflect and ask ourselves, ‘Do we just remain silent or become salient at that point in time’? And that’s how I came up with this concept of ‘rallying for our restaurant workers’.
Fundamentally, we’re a consumer company and we have a consumer connect. So, the idea was how do we connect with consumers and make them part of a movement, where they also come forward to support the restaurant workers. That gave germ to the thought of having an aggregator in play. So, this was really about coming together of three stakeholders who are interconnected, but who hadn’t worked together before, for a common purpose.
What we essentially did through this is that every time a consumer ordered a meal online on Swiggy, and so long as he or she is adding any beverage- not just Pepsi- for every beverage added, we donated a meal to the restaurant worker. All our proceeds were directed to it and we generated 2.5 million meals during the 40-45 day-long campaign. We generated a lot of goodwill too. It also gave consumers the power of one touch where they could make a difference in the restaurant workers’ lives.
Essentially, it was about leveraging Pepsico’s entire ecosystem of partnerships, so I think, for me the biggest learning was the power of partnerships, especially in difficult times. How collaboratively we can solve problems, rather than doing it alone. Now, of course, it’s heartening to see the service industries bouncing back.
How did the industry and the brand cope with the decreasing footfalls in restaurants and the consequent hit in revenue? How is Pepsico making a difference in the post-pandemic F&B ecosystem?
It’s a very symbiotic relationship that we have with our restaurant partners. It’s like them winning is us winning, and them losing is us losing. After the first wave, we recognised that the consumer habits were changing, and they were moving to aggregators. Because ‘ordering in’ was, in a way, needed and it became the new consumer habit. So what we did is that we worked with the food aggregators on a joint business plan to make sure that all PepsiCo partners, or PepsiCo restaurants, which are on the aggregator platform, how do we increase the discoverability of them. How do we make sure their average order value goes up? So, we came up with insights, partnership with aggregators, built combo led menus, PepsiCo collections, and also created incremental occasions for every festival, where you could celebrate at home with restaurant food. And that’s what we did for every single festival that happened in the last one and a half years through the aggregator platforms.
After the initial relief that food aggregators offered during the first wave, several restaurants now are at loggerheads with the food tech platforms like Swiggy and Zomato, believing that they are eating into their revenues now that businesses are opening up. Your take on it?
So, I think, the common insight is that everybody is recognising the benefits of being in a marketplace. It is akin to being in a food court in a physical world. Think of it- in a food court the consumers are there. So, you put up your brand shop, and then the consumer comes and tries it. That’s exactly what an aggregator marketplace is offering you. It does come at a cost. But so is the cost of every channel. I think fundamentally, every channel has certain pros and cons. It’s important to recognise the pros and make it work for you. For instance, the restaurant can ask the aggregator for a lot of insights. Say if you want to do targeted marketing, and want to talk to people who have not interacted with your brand in the last couple of months. So, the moment you recognise them as a partner, and say, what do you bring in as a partner, then I think one can have meaningful conversations.
The second thing I would say is revenue management is very critical. Like, every channel requires certain dynamics and the consumer requires something. So, fundamentally, you can work with the serve-size of your food, you can work with larger bundles, you can increase your order value on aggregators for group meal occasions. And aggregators are currently working on a model where higher your order value, lower the commission rate. So, it is happening. And a lot of players who have recognised that this is important are having those conversations, and it’s a win-win outcome.
And thirdly, I think, the stickiness that you build for your food and brand. Once you have built stickiness, the aggregator would also want you, so then they would also want to discuss different terms. Having said that, it’s not just all about aggregators. There is also a ‘direct order’. So, initially you get a trial done on an aggregator, you get immediate feedback, because ratings are visible. Once you have got your trial, and your feedback, and you rework your product and concept fitment, you can always leave a QR code on the packaging, and you can say, hey, next time you order, why don’t you order direct, you can leave a phone number. So, if consumers are comfortable, and if they love you, they will find you. Thus, it’s the mindset that one has to get out of.
Also Read | Why Restaurants are stepping away from Swiggy, Zomato with #OrderDirect campaign
What possible pitfalls do you foresee in the cloud kitchen ecosystem in India?
The only, if I may say, enemy of a cloud kitchen brand is going to be themselves. If they don’t build to last, if they kind of think that this is quick money. If you’re entering with that mindset, you will go wrong. Primarily, if you’re entering a restaurant business you have to enter with a hospitality mindset, be open to feedback for improvisations and have to build trust on board. That is very critical. If this is what a cloud kitchen is building its business on, it’s going to thrive and become scalable.
The second thing I would say is adoption of technology. One thing that cloud kitchens have access to, is data. They have to ask for that data, it would be available to them in some form. They know exactly how many orders they are taking, they know whether more group meals are getting ordered, or more single people are ordering, they know exactly how many orders are coming and from which location, etc. A physical restaurant didn’t have that choice. Cloud kitchen by the very nature of it is digital-friendly. So, any brand built on consistency, trust and then adopting technology, not just in data, even the processes having standard operating procedures of making food- has to succeed.
Cloud kitchens and food aggregator platforms saw a spurt during the pandemic-induced lockdown and its aftermath. Now, with businesses and restaurants opening up post-pandemic do you see the growth scaling or sustaining in 2022 and the near future?
In India, food consumption is on the rise. Because essentially consumer habits are shaping up. What started out as a need has now become convenience. And the fact you have access to so much variety. So, people are okay converting some of their occasions into ordering-in occasions. It takes about 90 days to build a habit, it is said. And in this case, it’s a two-year phenomenon! So, the habits have gotten entrenched.
The second thing is a couple of things that are fueling it such as, just the fact that people have more spending power now. Also, digital access- wherever you are, the internet travels with you. So, the access and the digital acceleration is supporting it. And when that happens, it’s not just on cloud kitchen, fundamentally, it’s the e-commerce app-based economy that’s really thriving. Digital penetration has happened and the Internet, smartphones are available in even tier four rural areas. People have become comfortable transacting online. Cloud kitchens are just a subset of that.
And honestly, consumers don’t know whether they’re ordering from a cloud kitchen or restaurant. When you open the app, you’re ordering biryani, and you are ordering from the best place which is nearest and will deliver you on time and has the best rating. That’s all. It is more our industry which uses these words, as far as consumers are concerned- they are ordering from a restaurant only.
People love ordering in and even love creating social occasions at home. This is here to stay. And in fact, not just survive, but thrive.
