Frito-Lay Aims to Cut Gas Bill's Bite
PepsiCo Snacks Unit Says New Machinery,
Policies Have Reaped Savings of $40 Million
By CHAD TERHUNE
June 5, 2006
PERRY, Ga. -- Rising energy prices are forcing PepsiCo Inc. to find creative ways to cut natural-gas use at the plants that crank out Lay's, Doritos, Cheetos and other snacks for its Frito-Lay unit.
New equipment installed at the Frito-Lay plant here sucks water off sliced potatoes before they go into the chip fryer. The 16 gallons per minute the equipment recovers reduces the fuel needed to boil excess water off the chips. The plant is also recapturing the heat from its ovens and rerouting it into boilers, as well as automating the dampers in ovens' chimneys to cut heat loss.
As a result, "We are in much better shape now to respond to these price spikes in natural gas," said Al Halvorsen, Frito-Lay North America group manager for energy and utilities, who has led many of the fuel-efficiency moves at the unit's 40 factories and nearly 200 distribution centers.
While many businesses are struggling with high fuel prices, they have been particularly hard on Pepsi. The Purchase, N.Y., company's profit rose 12% in the latest quarter, but its gross profit margin shrank 0.5 percentage point, which Pepsi blamed on the higher cost of fuel, cooking oil, oranges and plastic bottles.
Some analysts are worried that high fuel costs are starting to rattle investors who have come to expect consistent profit growth from Pepsi. "We are in this new world of $70" a barrel oil in which Pepsi has "to live with higher input costs," says Marc Greenberg, an analyst at Deutsche Bank.
So far this year, Pepsi shares are up just 2.7%, despite strong sales gains. That compares with the stock's 13% jump in 2005. In 4 p.m. New York Stock Exchange composite trading Friday, Pepsi fell 43 cents to $60.67.
Frito-Lay North America generates about 40% of Pepsi's overall profit but is more vulnerable to escalating fuel prices than other parts of the company. While Pepsi's sodas are made by independent bottlers, Frito-Lay doesn't outsource its chip-making and runs the eighth-largest U.S. trucking fleet.
Frito-Lay officials won't disclose how much is spent to fuel the trucks or snack-making plants, but its overall energy bill has increased steadily during the past few years. In 2000, Frito-Lay set a 10-year goal of shrinking its electricity use by 25%, fuel consumption by 30% and water usage by 50% -- all per pound of product made. The company says it is ahead of schedule in reaching those goals. The efforts so far have saved Frito-Lay $40 million and reduced its greenhouse-gas emissions by roughly 14%.
"This has been a focus for some time, but now it's a really big focus," says Rich Beck, senior vice president of operations at Frito-Lay.
Reining in the use of natural gas is a top priority since the fuel fires boilers, ovens and fryers in Frito-Lay plants. Industrial natural-gas prices have roughly tripled since the late 1990s, but Frito-Lay has trimmed its natural-gas use per pound of snacks by more than 20% since 1999, says Dave Haft, Frito-Lay vice president of operations.
Frito-Lay has scoured its operations in search of ways to become more efficient. Earlier this year, new corn-washing nozzles that reduce water use by as much as 40% were rolled out across North America.
At the plant here, with 1,200 employees and more than 1,400 retail and vending customers across seven states, Frito-Lay reaped $100,000 in annual savings by successfully lobbying Georgia officials to permit the use of 57-foot-trailers on state roads, instead of the previous maximum of 54-foot vehicles. The move eliminated about eight weekly truck trips from the plant to a distribution center in Florida.
In Florida and California, about 100 Frito-Lay salespeople have switched to driving Toyota Prius gasoline-electric hybrid cars instead of regular gas-powered sedans, and two hybrid-powered snack-delivery vans will be tested in Texas.
Next, company executives are tackling bigger projects such as alternative fuels ranging from methane gas to food waste. At Frito-Lay's Topeka, Kan., plant, the company uses free wood chips from the city to run its boilers instead of natural gas.
But fiddling with temperatures inside snack ovens requires lengthy testing to ensure chips don't turn out scorched or soggy. "Are the Doritos going to be the same?" Mr. Halvorsen said after inspecting freshly-cooked corn chips on a conveyor belt that were headed for a shower of ranch seasoning. "That is one of the biggest challenges." |
