How Seven CEOs will Change the Food Industry

Fourteen of the 15 largest food companies have changed CEOs in the past three years. Here’s a look at how seven of them will change the food industry.

By Diane Toops, News & Trends Editor

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Apparently it’s been a tough couple of years for the heads of U.S. food and beverage companies. Since Brenda Barnes took over at Sara Lee Corp. in February 2005, 14 of the 15 largest companies (as identified by the Food Processing Top 100 list) have new CEOs. Only Dean Foods’ Gregg Engles has held onto his job … and maybe that’s because he’s also chairman and probably the largest shareholder.

These are turbulent times. Costs for fuel oil and cooking oil are skyrocketing. Prices of raw materials, ingredients and packaging are spiraling. There appears to be a worldwide food shortage — which perhaps has been quieting last year’s clamor that processed foods and beverages are the cause of worldwide obesity.

Add to that a slowdown in the U.S. economy, and it’s hard for a food company to make a buck these days.

On the other hand, if any industry is recession-proof, it’s the food industry. People still have to eat, although they appear to be eating out less and possibly switching to cheaper store brands. All of which makes maintaining brand relevance one of the biggest challenges for today’s CEOs.

“Consumer staples companies and food companies in particular generate tremendous cash flow, and that’s how a stock should be viewed,” says Steven Ralston, marketing analyst at Chicago-based Zacks Investment Research, who refers to food and beverage companies as “moneymaking machines.”

“They are slow growth companies, mid-single-digit to high-single-digit on average, generate high cash flow, decent earnings and pay out decent dividends. This has not gone unnoticed. Warren Buffet has acquired a large position in Kraft Foods and Anheuser-Busch, which is in play right now.”

These are certainly challenging times for CEOs, says Dennis Krause, senior vice president and industry leader in food, beverage and agribusiness for GE Corporate Lending, Norwalk, Conn. “The past 18 months [have seen] unprecedented commodity price increases across the board. We have seen doubling or tripling of historical levels of commodity costs. The 40-year average of corn is around $2.40 a bushel. Today it trades upwards of $6 a bushel.

 “I think one of the challenges to large-cap company CEOs is what will happen to market share, because the economy determines how people eat – eating out less – but households are still working two jobs, so that puts a premium on convenience and on-the-go food,” says Krause. “That creates an opportunity for value brands, private label brands that present a better value for consumers.

“When a company is small or middle market and times get squeezed, promotional dollars are the first to go,” says Krause. “For large industry leaders, it presents an opportunity for CEOs to take advantage and spend to gain share of consumer dollars. With their balance sheets, they can withstand it and squeeze out companies that are not well capitalized. I liken it to a barbell – the leading brands (No. 1 and No 2) are on one end of the barbell along with value private label products. The sub-tier brands (No. 4 or No. 5) are on the other end. The environment is very dynamic and fluid and driven by cost increases.”

Despite the flurry of new faces, most of the CEOs we profile here replaced longtime company leaders. Stephen Sanger put in 34 years at General Mills, for example. It remains to be seen if the new guys will have the same longevity. One thing for sure, they all appear to have been given the mandate of change. So with this many new faces, the whole food industry will evolve in the coming years.

Indra Nooyi, PepsiCo Inc.


Pepsi’s entrepreneurial, non-bureaucratic, risk-oriented environment has nurtured many talented executives, including a handful of CEOs who now are at other food companies: Irene Rosenfeld (chairman/CEO at Kraft), Brenda Barnes (chairman/CEO at Sara Lee), Gary Rodkin (CEO at ConAgra), as well as others who have gravitated to other fields.

One who didn’t get away is Indra K. (Krishnamurthy) Nooyi, who became the fifth CEO in PepsiCo's 41-year history in October 2006. Born and educated in India, Nooyi moved to the U.S. in 1978 to earn a master’s degree from Yale University. She joined PepsiCo, Purchase, N.Y., which claims to be the world’s largest convenient food and beverage company, in 1994.

Named CFO in 2001, she helped spin off Pepsi’s restaurants into Yum! Brands and the company-owned bottling operations into Pepsi Bottling Group. She was instrumental in the $3.3 billion acquisition of Tropicana in 1998. And she led negotiations on the $13.8 billion PepsiCo merger with Quaker Oats in 2001.

Her reward was a seat on the board and the title of president, placing her in line to succeed CEO Steve Reinemund, who already was turning PepsiCo from a soda company to an international food and beverage company stressing health and wellness in new product development.

As president and CFO from 2000 to 2008, Nooyi was credited by analysts with transforming the company's global strategy when both Coke and Pepsi faced a challenging environment in their core market for carbonated soft drinks, as more health-conscious consumers switched to juices and water.

Since becoming CEO (only 2 percent of the CEOs of Fortune 500 companies are women), Nooyi has reorganized PepsiCo to accommodate international growth by dividing operating units into PepsiCo International, PepsiCo Americas Foods and PepsiCo Americas Beverages. She doubled her executive team to 29, and wants better nutrition to be part of PepsiCo’s DNA.

Acquisitions are Nooyi’s mantra, analysts say, and mostly in the health and wellness sector — but so far, the company has only gone after Naked Juice in the U.S. and a handful of Eastern European companies. Joint ventures with Lipton and Starbucks are bringing new beverage opportunities to the table.

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