 When
you think of products that demonstrate the way technology
has changed the business world, computer chips immediately
leap to mind. Corn chips? Not so much. But Frito-Lay North
America, a division of PepsiCo, is a great example of an
older and established company that has leapfrogged its
competitors by savvy exploitation of the digital economy’s
key drivers. With high-tech underpinnings, a global
footprint and an entrepreneurial drive that any dot-com
startup would envy, the company is adapting, thriving and
taking a mega bite out of its snack-food competitors.
At the helm of this $11 billion global enterprise is
Smith School Board of Visitors member Al Carey (BSOS ’74),
who took the reins as president and chief executive officer
of Frito-Lay last summer. Since then he’s been shuttling
back and forth between PepsiCo’s headquarters in Purchase,
NY, and Frito-Lay’s home office in Dallas, TX. “I’m running
fast right now,” Carey admits. More than 47,000 people work
for Frito-Lay. The company owns 15 brands worth more than
$100 million, including Tostitos, Doritos and Cheetos, and
generates 38 percent of PepsiCo’s profits.
 But
the company isn’t resting on its laurels. Frito-Lay has an
aggressive set of growth expectations—expectations that
present quite a challenge in an environment where health
issues and expanding waistlines are a growing concern for
consumers. “As a country, we’re dealing with an obesity
epidemic,” says Carey. “So as a company, we’re working to
develop products that are healthy for consumers, and trying
to change our image.”
How is Carey leading his company to even greater heights
despite the challenges it faces? By taking advantage of
three key drivers of the digital economy: technology,
globalization and entrepreneurship.
The digital economy rewards entrepreneurs: the creative, the
flexible, the driven, the risk-takers. It’s not easy for a
large, established organization to operate on a global scale
yet remain nimble enough to respond quickly to the rapid
pace of change. Carey says that PepsiCo has given him and
other top executives an unprecedented amount of freedom to
pursue the next big thing.
“I doubt you’d find another $34 billion company that’s as
entrepreneurial as ours,” says Carey. “Compared to other
large companies, there is a lot of freedom and
responsibility given to managers. You feel like it’s your
own business.”
Carey appreciates this freedom, and he uses it to pursue
his passion for innovation—a passion shared by everyone in
his organization. “Our performance expectations are so high
that you can’t achieve your performance goals unless you
have innovation. So we spend a great deal of time developing
new products to meet consumer needs,” says Carey.
As consumers express a growing desire for healthier
products, PepsiCo is “very aggressive about developing new
product lines,” says Carey. Though it has not abandoned
carbonated drinks, the company has expanded its product line
to include flavored waters, green teas, isotonic drinks like
Gatorade, enhanced waters and juices fortified with
vitamins. Frito-Lay is working to produce snacks that will
have more fiber, less salt, and more protein. The company
recently rolled out a line of fruit and vegetable crisps
under the Flat Earth brand name that contains half of a
serving of fruits and vegetables per ounce.
New technology is making it possible for Frito-Lay to create
these nutritious offerings. Manufacturing technologies like
vacuum frying make it possible to turn nutritious but
water-laden fruits and vegetables into crisp and appealing
snacks. Baked potato chips require a different manufacturing
technology than traditional chips. And Frito-Lay is
exploring technologies that will allow its manufacturing
plants to produce some of the company’s new, healthier
products on existing manufacturing lines.
Carey isn’t excited about new technologies only.
Established technologies are being applied in innovative
ways to generate cost savings for Frito-Lay. “We’re figuring
out how to use solar energy panels to heat water to produce
enough steam and energy to run an entire manufacturing line.
We’re also looking at ways to take the waste steam from
production and pumping it back into the plant to provide
energy for the plant.”
The company’s vast and complicated supply chain is also
reaping the benefits of cutting-edge technology. On the
go-to-market side, Frito-Lay has 18,000 route salespeople
who drive Frito-Lay trucks and deliver product to stores. In
the past, route salespeople had to order product, drive to
the distribution center, pick up their product, load it onto
a cart, check out of the distribution center, and then load
their trucks. It was a completely manual, extremely labor-
and time- intensive process.
These days Frito-Lay uses a sophisticated “pre-picking”
system and some powerful artificial intelligence (AI)
software. The AI program recommends the amount of product to
salespeople based on their purchasing history. Each
salesperson then uses a handheld computer to T-Com the order
to the distribution center, where the orders are pre-picked
and pre-loaded on their trucks before the salesperson even
arrives in the morning.
Moving the complexity of this process up the supply chain
from the route salesmen has saved route salesmen time and
resulted in better sales for Frito-Lay. “The salesperson’s
route can be larger, because he isn’t spending as much time
at the distribution center in the morning; his income is
bigger; and he can spend more time with store managers
developing those relationships,” says Carey. “It’s been a
great success for us.”
Carey says the company is employing technological
innovation at every level of its business. It is an
interesting time for someone who is, by his own admission,
“not a technology person.” But despite his non-technical
background he understands the important role he plays in
shaping a culture at Frito-Lay that not only accepts but
welcomes technology-driven changes. “The leader has to
endorse the mindset of being enthusiastic about using
technological changes to drive the business. That enthusiasm
sets an atmosphere that attracts the best researchers, the
best technologists and the best engineers, who then want to
come and work for you,” says Carey.
Frito-Lay had its humble beginnings with two southern U.S.
entrepreneurs in 1932. Today the company has a presence in
nearly 170 countries, and 35 percent of its profits come
from international markets. This number has increased
significantly in the past seven years. The company’s
commitment to expanding its global footprint has led to big
successes in emerging markets. In India and China, where
PepsiCo made significant investments in brand development,
Pepsi now has as much market share as arch-rival Coca-Cola.
 Frito-Lay
actively markets its line of American snacks overseas, but
it has also focused on tailoring products to the flavor
needs and wants of its global markets. Sabritones brand
chili and lime flavored puffed wheat snacks are a hit for
the company in Latin America, for example, while
dill-pickle-flavored Lays crisps are popular in the United
Kingdom. It’s a winning strategy that combines globalization
with localization. Carey has high expectations for continued
growth in international markets and expects that Frito-Lay
will continue creating innovative products for consumers
around the world.
Carey has been part of the PepsiCo family for 25 years, most
of them with Frito-Lay. In that quarter-century the world
has been irrevocably changed by the effects of technology.
But Carey isn’t fighting change. As a leader for the digital
economy, he welcomes it.
“It’s like changing the tires on your car. You don’t wait
till the wheels come off the vehicle,” says Carey. “You
change constantly to try to stay ahead of the market. I
constantly look at our business and benchmark it against our
competition—even against companies that are not our
competitors.”
Carey admits that at one point Frito-Lay had a reputation
for ‘changing the tires’ while still going 60 miles an hour.
Carey feels there is now more stability in the company, but
he knows that change is unavoidable. “If you have high
expectations for growth, then you have to be prepared for
change,” says Carey. “I’ve been through very large changes
in this company, where we had to reorganize Frito-Lay almost
from the ground up. We had to reduce expenses by $200
million and lay off 2,200 people because we didn’t make the
changes we needed to along the way. I don’t ever want to do
that again.”
 Frito-Lay
has practiced what Carey preaches. In addition to its
constant product innovation, its commitment to making the
best use of available technologies, and its commitment to
global expansion, Frito-Lay has also been remarkably
sensitive to prevailing winds of change in the marketplace,
particularly as it relates to consumer health concerns. The
company was one of the first food-processing companies to
respond to health concerns about trans-fats by eliminating
all hydrogenated oils from its products. It was a remarkably
quick response that involved change on a huge scale, but it
was a step the company needed to take, and from which it has
benefited.
With Carey at the helm, Frito-Lay will continue to adapt
and change, making imaginative and innovative use of
technology to grow its business in the competitive global
market. And Carey will continue to live the life of a leader
for the digital economy, in a world where corn chips and
computer chips are more connected than ever.
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