Best in Class: Pepsi's Plan for Global Domination

Has our return on invested capital declined as a result of the bottling acquisition? We see ways of improving that year after year. In fact, what we've talked about to investors is we expect to see 50 basis points of ROIC (return on invested capital) improvement for the next couple of years. So do we feel good about the financial aspects of the bottling acquisition? The answer is an unquestionable yes. We feel terrific about where we think this is going to take us, and we felt good about it right from the get go. And we're confident that investors can understand the changes in the numbers and be able to sort it out pretty effectively.

TheStreet: So in some ways you had to bite the bullet?

Johnston: I wouldn't even think about it necessarily that way. I'm pretty well convinced that investors at the end of the day are -- ROIC -- if you use that -- is a metric that they're interested in, but they're also interested in growth; they're interested in fundamental profitability, they're interested in the durability of the financial equation that you present to them. I think when they look at the aggregate of all of the financial metrics by and large, they feel good about this move. As a result, I don't even think about it as biting the bullet.

We really didn't spend any meaningful time talking about that aspect of it. We knew it, we looked at it and we said, 'yeah that's exactly what's going to happen' and we moved on because we knew we were on the right strategic course and we knew what was consistent with being a financially-disciplined company.

One of the interesting facts about PepsiCo is if you compare company-owned to franchise across the entirety of our snacks, beverages and foods business, 85% of our business is company-owned. Only 15% is franchised. And that's why when you ask about comparisons to Coke -- I think you would probably see a very different set of numbers on that particular metric for Coke and why it gave us such a level of confidence going into an operating business with the belief that we have the skills set, mindset and culture in our company -- so it's not going to be something terribly new to us.

TheStreet: How has the integration of the bottlers been going?

Johnston: It's gone extremely smoothly. We had the good fortune from the time that we announced the agreement with the companies to the time we actually closed the deal --- because it had to go through all the necessary approvals -- we had a lot of time to plan it. And with that time, we used it to really get to down to a very low level of detail, planning exactly what it was we were going to start to do from the moment we had approval and could go forth and take it from a planning stage to an action stage. The second big advantage for us was these were management and operating cultures that were familiar to us because of our longstanding working relationship.

I was around when the Quaker business came together with PepsiCo and there you had a wonderful consumer business -- and it's been a wonderful combination, but we clearly had to go through a stage where we needed to learn about that company; and they needed to learn about us. I actually was the CFO out there, one of the first people on the ground once we finally put the businesses together. There was a lot of cultural learning that you had to go through.

Here, we had substantially less of that. I won't call it zero, but there really wasn't a lot because we were so closely intertwined to begin with. So I think the combination of an extended planning time along with the fact that we were very familiar with each other and what each others' roles were has made this go extremely smoothly.

Best in Class: Pepsi Takes on the World (Part 2)

Click here for part two

-- Reported by Andrea Tse in New York

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