Reinemund, Steven S. 1948–
Steven S. Reinemund
Chairman and chief executive officer, PepsiCo
Education: U.S. Naval Academy, BS, 1970; University of Virginia, MBA, 1978.
Family: Married Gail (maiden name unknown); children: four.
Career: PepsiCo, 1984–1986, senior vice president of operations of Pizza Hut division; 1986–1991, president and chief executive officer of Pizza Hut division; 1991–1992, president and chief executive officer of Pizza Hut Worldwide; 1992–1996, president and chief executive officer of Frito-Lay North America division; 1996–1999, chairman and chief executive officer of Frito-Lay worldwide division; 1999–2001, president and chief operating officer; 2001–, chairman and chief executive officer.
Address: PepsiCo, Inc., 700 Anderson Hill Road, Purchase, New York 10577; http://www.pepsico.com.
■ Steven S. Reinemund was only the fourth chief executive in the history of PepsiCo, a multinational that generated nearly $27 billion in sales in 2003. A company man throughout his career in operations, Reinemund earned his rank by leading unprecedented growth of units he commanded. The former marine was the rare executive who was just as effective at making executive decisions as he was working hands on. Chosen by the previous PepsiCo CEO, Roger Enrico, Reinemund was given the mandate to lead a fast-growth company in a notoriously slow industry. After maneuvering the company through an initially painful integration with Quaker Oats, Reinemund continued to chip away at Coca-Cola's market share while positioning his company to capitalize on the health concerns sweeping the country.
A TRACK RECORD OF PERFORMANCE
After college Reinemund spent five years in the marines, achieving the rank of captain. He guarded the White House during parts of the Nixon and Ford administrations. Reinemund began his career with PepsiCo in 1984 at the corporation's former Pizza Hut division, where he served as CEO from 1986 until 1992. One of his first decisions was to enter the delivery business dominated by Domino's Pizza. When his staff complained that delivering pizzas was too undignified, he hired a new team. Two years after the 1986 launch of its delivery business, Pizza Hut overtook Domino's as the number one delivery business in the country.
Reinemund's next assignments at PepsiCo's Frito-Lay unit prepared him ultimately to lead the company. PepsiCo's Frito-Lay division accounts for more than 50 percent of PepsiCo's company sales. First Reinemund was president and CEO of Frito-Lay North America and then chairman and CEO of Frito-Lay worldwide. During that time, Frito-Lay sales grew an average of 10 percent a year, and profits doubled. In 2000 Frito-Lay achieved greater sales volume growth than any other major U.S. food company. Later, as PepsiCo's president and COO, Reinemund led the company's five operating units to generate respectable growth in a sluggish sector.
At each step of his climb up the corporate ladder, Reinemund earned a reputation as a visionary who knew how to translate the big picture into clearly defined goals. When Eagle Snacks challenged Frito-Lay's market share, Reinemund fought for new ways to become more competitive. He ultimately overhauled logistics to make it easier for route managers to forecast and fill inventories. Said Bill Nictakis, a sales executive who worked with Reinemund at Frito-Lay, "He dives really deep and understands what's going on, but at the same time he has a master plan to figure out how the pieces fit into the mosaic from 30,000 feet" (USA Today, December 5, 2000).
A POLISHED EXECUTIVE AT EASE WITH HIS TROOPS
For Reinemund, image was important. As a former marine, he maintained a militaristic preference for a clearly defined corporate uniform. Combining seriousness with formality and polish, he preferred monogrammed shirts and shiny wing tip shoes. Craig E. Weatherup, CEO of Pepsi Bottling Group, described Reinemund's style: "He always looks like he's ready to go on the cover of Gentleman's Quarterly " (Business Week, January 29, 2001). But Reinemund was no "corporate suit." He relished opportunities to roll up his sleeves and get his hands dirty outside the executive offices. A famous Reinemund story occurred one Christmas Eve. Reinemund was doing family errands, having gone to the store to pick up few things. He found a Frito-Lay delivery driver at work that night, stocking a Colorado convenience store. Reinemund jumped in immediately, helping the worker load chips onto the store's shelves.
As an effective leader, Reinemund knew how to build morale and motivate employees. In 2000 he recruited a team of 50 Pepsi employees to run the New York City Marathon in memory of a coworker's brother. The pregame festivities included a pep rally hosted by Reinemund, a dinner at his home with his wife, Gail, and another dinner at the ESPN Zone in New York City. (The 1999 marathon marked Reinemund's fifth appearance in the race.) Said Enrico of Reinemund, "He goes out of his way to put a very human face on this organization" (USA Today, December 5, 2000).
STEPPING INTO THE CEO'S SHOES
In December 2000 Enrico announced PepsiCo's $13 billion deal to buy Quaker Oats, which included the prized Gatorade brand. As soon as the deal closed, then CEO Enrico said he would hand over the CEO title to Reinemund, who would be in charge of ensuring that the integration produced shareholder return. Reinemund inherited a recharged company with enough momentum to unnerve Coca-Cola. But while Enrico managed to turn the company around, Reinemund was left with the potentially more difficult task of ensuring its accelerated growth in a painfully slow yet fiercely competitive industry. Tom Pirko, president of BevMark, a beverage marketing consultancy in Santa Barbara, California, noted that "Reinemund's mandate is to go faster" (Business Week, January 29, 2001).
Success depended on the company's ability to create pioneering products and to capitalize on the huge opportunity in urban markets. "The day we are not talking about growth at PepsiCo we are no longer in business. We have to be more focused on innovation than ever before," said Reinemund (USA Today, December 5, 2000). In order to do just that, Reinemund began broadening the company's management. His goal was to align the rate of retention and promotion of women and minorities. He even tied that objective to senior management performance reviews.
PASSING THE FIRST TEST AS CEO
In order for Reinemund to meet his goals, he would have to ensure the success of the Quaker acquisition. The postmerger transition did not go smoothly at first, and Reinemund's reputation was on the line. The integration of the Gatorade and Tropicana sales forces resulted in a botched sales promotion, and a key Quaker Oats executive left the company. When Reinemund announced the first combined results, it was unclear whether the acquisition could deliver the intended results. Supermarket sales of Gatorade, Quaker's crown jewel, were up only 7 percent in the last quarter of 2001 compared with the 15 percent pace set by its market peers. One grocery store buyer said that he had not even heard from his Gatorade rep in several months. "I kind of think they're in limbo" (BusinessWeek, March 4, 2002).
Reinemund remained confident that the problems could be worked out. "I don't know how long it will take, how long that is, but it's not a month or two" (Business Week, March 4, 2002). The obstacles did not prevent the acquisition from ultimately succeeding. PepsiCo's total sales grew nearly 7 percent in 2002, boosting the company's annual revenue growth over its historical 6 percent growth rate. In 2003 the company announced that it was on track to realize its goal of achieving $400 million in synergies by the end of fiscal year 2004.
REORGANIZING FOR GROWTH
In late 2003 Reinemund announced a reorganization intended to increase revenues by focusing sales efforts and reducing redundancies. In addition to terminating the employment of 750 people and closing a Frito-Lay factory, he announced the debut of a new "power of one" sales team that would promote and sell Quaker and Tropicana or Frito-Lay and Pepsi together. The initiative was a long time coming and one originally heralded by the former CEO Enrico. The aim was to integrate selling operations and distribution logistics. Even though Pepsi, Tropicana, Frito-Lay, and Quaker delivered their products to the same U.S. stores, each division previously ran separate distribution systems. Reinemund believed that they had to act as a single company.
During a 2003 meeting with financial analysts in which he detailed many changes, Reinemund expressed optimism for 2004 but conceded that the company still faced formidable challenges, not the least of which was Coca-Cola. A week before that meeting, Coca-Cola inked a deal to take over fountain sales in 2005 at the 16,000-store Subway chain, Pepsi's biggest fountain customer.
POSITIONING PEPSI AS HEALTH CONSCIOUS
An early 21st-century consumer trend challenged the very relevance of PepsiCo's products. Consumers began planning their diets with more scrutiny amid concerns that more and more Americans—particularly kids—were wreaking havoc on their bodies with meals lacking any substantive nutritional value. The Centers for Disease Control and Prevention announced that more than half of U.S. adults were considered overweight or obese. Lawsuits linked the McDonald's menu and Oreos to the so-called obesity epidemic, and legislators proposed taxes on fatty foods.
Reinemund turned this consumer trend into a growth strategy—one that he could feel good about. Rather than eliminating the company's hallmark chips and soda, he envisioned a company whose products would mirror a diet based on moderation and balance. He divided the company into three categories. "Fun-for-you" products, such as Doritos and Mountain Dew, represented the biggest piece of the company's portfolio with 62 percent of North American sales volume in 2002. "Better-for-you" products, brands like Baked Lays that have fewer calories and less fat, represented 22 percent of sales. Relatively nutritious "good-for-you" products, like Quaker products and Tropicana orange juice, accounted for 16 percent of sales.
With existing brands such as Tropicana and Quaker giving him a head start, Reinemund expressed an interest in making 50 percent of the company's new products nutritious. "It's one of the few opportunities in my career to promote a set of products I personally believe in, in a way which is good for the business" (Journal News, Westchester County, New York, July 28, 2003). Reinemund eliminated trans-fatty acids, which raise bad cholesterol and lower good cholesterol, from the company's snack chips.
Reinemund likened the new initiative to an exercise in corporate responsibility. Without trust—from consumers, employees, and investors—PepsiCo would never become a world-class company, he said. "Creating that trust comes from the doing the right thing for these consumers. Students coming out of high school today don't want to work for a company that doesn't have the right corporate values and ethics" (Journal News, July 28, 2003).
But nutritionists criticized Reinemund's initiatives as a thinly veiled marketing ploy simply to sell more food. Said Marion Nestle, author of the book, Food Politics: How the Food Industry Influences Nutrition and Health and chair of the New York University Department of Nutrition and Food Studies, "The argument that all foods can be part of a healthy diet is the favorite argument of the food industry. It's still junk food" (Journal News, July 28, 2003). Hoping to allay some of those criticisms and strengthen the notion that drinking Pepsi and staying healthy are not mutually exclusive activities, Reinemund began partnering with the nutritional community and building on a health strategy that transcended the products his company makes. Pepsi contributed money to causes that encouraged kids to become more active, sponsoring the Webbased journal Get Active Stay Active, which helped teens track their physical activity, and donating $16 million over 10 years to help poor teens enroll in YMCA programs. Analysts applauded Reinemund's strategy. Said Bryan Spillane of Banc of America Securities, "He has put PepsiCo in a position to take advantage of consumers eating healthier" (Business Week, October 20, 2003).
A STRONG SHOWING IN THE COLA WARS
As of early 2004 PepsiCo's Frito-Lay division was the number one maker of snack chips, and its Tropicana Products unit led the world in juice sales. But its namesake soft-drink business was the longtime runner-up to the Coca-Cola Company. Reinemund had made a strong showing of reversing that trend. In 2003, for the first time in 10 years, Pepsi's price-to-earnings ratio matched Coke's. And PepsiCo secured longtime Coke contracts from the NFL and United Airlines.
Adding to the legacy he inherited, Reinemund's efforts appeared to be paying off in early 2004. According to annual rankings released in early 2004 by Beverage Digest –Maxwell, PepsiCo increased its share of the $64 billion U.S. soft-drink market to its highest level since 1992. Coca-Cola's U.S. market share fell .3 percentage points to 44 percent while the market share for PepsiCo grew .4 percentage points to 31.8 percent. While Coke struggled to replicate its success in 2002 with the debut of Vanilla Coke, Pepsi achieved a longtime goal of creating a lemon-lime drink—Sierra Mist—that could challenge Coke's Sprite brand. Sierra Mist was so successful that it landed on the list of top 10 soft-drink brands. Said John Sicher, editor and publisher of Beverage Digest, "Most notably, Pepsi has finally cracked the lemon-lime code and has a big new brand with Sierra Mist" (Wall Street Journal, March 4, 2004).
Pepsi was also number one in the United States in the noncarbonated beverages market, which includes its All Sport sports drink and Aquafina bottled water products. Analysts estimated that the market for noncarbonated beverages was expanding at least 60 percent faster than that for soft drinks.
AN UNCERTAIN FUTURE FOR PEPSI
Reinemund's legacy will depend on whether he can sustain momentum in the cola wars. Another key test will be his ability to move from a massive company with separate, individually operated business units to a more integrated firm. While other companies of Pepsi's size have eliminated separate sales teams, marketing departments, and even supply chains associated with each unit, Pepsi has yet to follow suit. Said Tom Pirko, president of BevMark, "They've been talking forever about how they're going to streamline operations and integrate systems and they're still talking. The commitment just hasn't been there" (eWeek.com, May 1, 2003).
Reinemund admitted as much during an analysts meeting in 2003. "I have to tell you, we've talked about this for years. I can remember in 1986 having a meeting with the division presidents at the time, and we talked about synergistic things we could do together, and we had a nice discussion for a couple hours and went back and nothing happened" (eWeek.com, May 1, 2003). But he made it clear that he had no intention of doing away with his company's autonomous business-unit structure. He envisions a subtle collaboration between business units that would strengthen the company's overall performance. In fact, he credited division competition as a key component of each unit's strategy. As he put it (USA Today, December 5, 2000), "If we were all about central business directives to get results, it would destroy the cultures. The success of Pepsi in the future is based on the ability to create business opportunities and divisions where people can take ownership."
Some experts see this inability to choose sides between central control and business unit control as a mistake. Only time will tell. Said one former executive, "They've got one foot on the gas and one on the brake" (eWeek.com, May 1, 2003).
See also entries on Frito-Lay Company and PepsiCo, Inc. in International Directory of Company Histories.
sources for further information
Brady, Diane, and Monica Roman, "Pepping Up Pepsi," BusinessWeek, October 3, 2003.
Byrnes, Nanette, "The Power of Two at Pepsi," BusinessWeek, January 29, 2001, p. 102.
Byrnes, Nanette, with Julie Forster, "A Touch of Indigestion," BusinessWeek, March 4, 2002, p. 66.
Howard, Theresa, "Deal Puts Reinemund on the Fast Track: Once Set to Be Chairman and CEO in 2002, He Will Take the Positions Next Year," USA Today, December 5, 2000.
Klingbeil, Abigail, "Corporate Profile; Chairman and Chief Executive Officer," Journal News (Westchester County, New York), July 28, 2003.
"PepsiCo: No Deposit, No Return; Food Service: The Choice of a New Generation Is Rife with Options. Will Pepsi Prove Itself to Be up to the Challenge?" eWeek.com, May 1, 2003.
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