Green grows the PepsiCo.
When a global corporation makes a commitment to environmental sustainability, and puts money into its mantra of change, it’s worth taking note. PepsiCo, which started out with Pepsi Cola in 1898, began turning green exactly 100 years after its first fizzy brown cola. 1998 saw the shift in hue, and with the choice of Indra Nooyi as CEO in 2006, the greening of Pepsi has leapt forward.
The greening process, and choosing to continue the process in this extraordinarily turbulent time, is both important. The Pepsi-Cola division is the second largest soft drink business in the world. Its Frito-Lay division is the world leader in salty snacks, generating 60%–plus of PepsiCo’s net sales and more than two-thirds of the parent company’s operating profits. Tropicana Products Inc. the third division, is the world leader in juice drinks. Included in that division is the Quaker Oats Co., which also houses Gatorade.
According to Tom Schaefer, Principal Engineer in the Quaker, Tropicana, Gatorade Energy Group, “PepsiCo invested manpower and expertise in sustainability. They started in 1998 with Frito Lay distribution centers. They went full bore into it, first as a productivity measure, freeing up money from energy costs. There’s an astronomical amount of money in just doing energy efficiency, in boilers and in changing to efficient lighting. The number than runs pretty much through all of our manufacturing is that 20% of our energy costs are consumed by lighting.”
Schaefer adds, “All the centers went after the lighting, what you call the low-hanging fruit.” By just upgrading their T-12 fluorescent lights to T-5s and T-8s, they cut kilowatt usage in half. An added plus is that since T-5s and T-8s “don’t burn as hot, we save on the A/C.” Schaefer adds that Frito Lay has about “40 manufacturing sites and hundreds of distribution centers. They went to energy-efficient lighting in the late 90s and early 2000s.”
“I wish we had more of those projects,” he says. “It’s amazing how many companies haven’t done that yet.
“I’m a tactical person,” he continues. “When I started in 1998, the program was viewed as a productivity team, to reduce costs to make the product. What started out as a productivity driver in 1998 has moved throughout the company. In the Quaker division, we’re already down 20% in fuel, water, and electricity consumption. For example, in 2004, if it took one kilowatt-hour per pound to make a product, we’ve driven that down to 0.8 kilowatt-hours, or 20%.”
When Nooyi became the company’s CEO in 2006, the initial impetus to reduce product cost through energy savings shifted into a higher gear. Schaefer says, “PepsiCo was heading that way, and she put a lot more horsepower behind it.”
Being handed the company reins, Nooyi articulated goals supporting the Corporation’s sustainability commitment, something she called Performance with Purpose. “We believe financial achievement can and must go hand-in-hand with social and environmental responsibilities,” says Nooyi. That means, in part, performance on Wall Street coupled with “minimizing our environmental footprint with the goal of reaching a net-neutral impact.”
2007 saw the establishment of an Environmental Sustainability Leadership team and Environmental Council to ensure that environmental impacts are considered throughout the organization. That year also saw the implementation of an analytic framework ensuring that sustainability is factored into capital expenditures early on in any proposal process. “We believe a company can grow by using less,” says Nooyi.
Also in 2007, PepsiCo made landmark purchases of Renewable Energy Certificates (RECs) to offset the purchased electricity used by all PepsiCo US Facilities. They will do the same for 2008 and 2009. At the end of each year, they reconcile changes in their energy use and purchase additional RECs to make sure they have enough to cover 100% of their usage. If their use shrinks, which they hope, based on efficiency measures they’re taking, they will still buy RECs back to the 2006 levels of use. Their initial REC purchase (partnered with Sterling Planet) was enough to cover 1.1 billion kWh of electricity. The company’s challenge is by 2015 to reduce water consumption and electricity usage by 20% and fuel consumption by 25%.
What are some of the newest moves taken to save energy, costs, and the environment? In June 2008, a week before the best rays of the year with Summer Solstice, a Quaker Foods warehouse in Fullerton, CA, flipped the switch for solar energy.
Schaefer says the Fullerton storage facility is “small enough so that solar creates more than the plant draws during peak sunlight hours.” With the big warehouse off the grid between 11 a.m. and 3 p.m., “we’re banking the power during those hours, with net metering back on the Southern California Edison grid,” he says.
The rooftop-mounted solar panels (designed and installed by SPG solar of Novato, CA) will produce 465,000 kW per year, providing a 250-kW AC system from 294 kW DC. The Gatorade facility received a 30% federal tax incentive, along with a California Solar Initiative providing incentives that pay over five years. Schaefer says that several of their California plants have gone solar.
The solar panels at Fullerton were step two in the company’s energy efficiency plans. Schaefer says, “We had a lighting audit [in 2005]. We had metal halide throughout the facility, pulling 120 kilowatts. The lighting load dropped to 58 kilowatts. The beauty of high efficiency lighting is that you get a better lighting level and an extended life. Metal halide lights have a rated life of 20,000 hours. Then if a light hasn’t burned out, you only have about 50% lumens.”
So this facility, like the multiple dozens of other PepsiCo division sites, saved money and energy together just by upgrading the lighting.
How did Schaefer pick SPG Solar? “I went to the 2007 annual Solar Conference in Long Beach, California,” says Schaefer. “There was a round table of Fortune 500 companies. I asked, ‘who installed your systems.’ I got two or three names, then visited them at the show.”
In October 2008, the Tolleson Gatorade manufacturing plant received approval of plans to invest in solar thermal, saving fuel to heat the ingredient water that makes Gatorade. “We’ll displace 70,000 therms in the boiler—at about a dollar saved per therm, $70,000 will be saved with this system,” says Schaefer.
This will be step three at just one plant. Four months after Fullerton, in Tolleson, AZ, solar again made big news, at one of the largest Gatorade plants in the world. With 797,000 square feet of manufacturing, warehouse, and distribution center space, “the rooftop there is enormous,” says Schaefer.
Again, SPG handled the project. Schaefer says that to begin with, “we’ve only taken 15% of the roof space. We’ll keep on adding to it over five to six years. What we’re hoping, if we completely fill out the roof, we could theoretically hold four megawatts on a kilowatt system which would supply 80% of the peak power requirement for both manufacturing and distribution buildings. Our long-range plan is almost net zero for daytime. These facilities are pretty much 24/7.”
Even now, the 15% will supply 40–50% “of what the distribution center would consume,” he adds. “At noon on day one, we were already exceeding 400 kilowatts.” Officials say that the energy saved at the Tolleson facility is enough electricity to power 50 Arizona homes for a year.
Schaefer says the return on investment (ROI) “with all the incentives, the payback is running in the seven-eight year range. When we kicked off this project, the PR people told us not to say the costs. A rough rule of thumb for most roof-mounted photovoltaic systems, cost is about $6,000 to $7,000 per kilowatt. What made it work was the 30% federal tax incentive, the $1.2 million from the Salt River Project, a $5,000 Arizona State tax credit, and other items that come into play, such as accelerated depreciation. Accelerated depreciation makes these projects palatable to corporate America.”
SPG Solar began installing the nearly 2,500 rooftop panels in late July of 2008, and “we came up two weeks early. The crews did an outstanding job,” says Schaefer. “It’s a fixed, non-penetrating system, kind of unique. It’s tilted 22 degrees into the sun, it’s rated 500-kilowatts DC and converted to AC, and the peak will be 423 kilowatts. The system generates an estimated 800,000 kilowatts a year. It’s the largest, I guess what you would call, commercial rooftop system in Arizona right now.”
At the Modesto, CA, Frito-Lay manufacturing site, solar power works twofold—for electricity, and with a parabolic trough system, for heating fluid to heat the cooking oil used in manufacturing Sun Chips. Schaefer says the system there is large enough to offset the natural gas needed to make the SunChips, Frito Lay’s line of multi-grain snacks. “It’s tied to the steam system for energy at night, but there is all this extra energy during the day,” says Schaefer. “When you talk renewables, out of all of them, I just think the solar thermal is the best for us. Basically we heat things up and cool them down.”
In January 2009, solar thermal was in place at the Tolleson, AZ plant. Again speaking of heating things up and cooling them down, Schaefer says, “When we minimize the up ramp hot water for Gatorade, we burn less gas in the boiler. We’re climbing the mountain, so to speak.”
The companywide goals of 2015 are set against the 2006 usage figures for water, electricity, and fuel consumption. And by 2006, many plants were already down about 20%, so the 2015 goals make things harder. Schaefer says, “We have year-to-year goals to reach the 2015 goals. It was easy at the beginning, the low-hanging fruit, with energy-efficient lighting. There’s no more low-hanging fruit! In order to incrementally drive down consumption, you need a process change or technological breakthroughs. Annual goals might be that we want to drive out 35 Btus—if we use 1,000 Btus per pound of product made, and want to reduce that, let’s say by 3%.”
Schaefer says that for 2009, “our charter is to refocus on plant operations and plant maintenance. There’s money to be made there. We benchmark plants against each other. Frito Lay is a little more mature, and has set standards for all products, so that’s how they benchmark their plants. They can see how far they are off the standards. We’re trying to bring all technologies in place now up to the highest standard we can in all divisions. Each facility each year is given reduction goals, and do they have projects set up to reach them? The tactics are whatever is needed to reach the goals.”
As a nuts-and-bolts man, Schaefer is always looking to see what more can he do in his division to keep the 2% to 3% continued reduction all the way to 2015. “It’s a combination,” he says. “We have stuff on the table, more like process changes. More energy-efficient equipment is being made and capturing heat to save money, plus renewables.”
Here again, the example of Gatorade, which rejects a lot of heat to cooling towers, is a prime example. “Recovering heat and putting it back into the beginning of the process, using heat on the down ramp to put into the front end,” makes smart sense. Schaefer adds, “You’d be surprised how much energy can be saved by how things are shut down or started up. Are all the valves off; are conveyors left on when they aren't needed? We have leak detection teams for air leaks and color code breakers to shut lights off, and, in the start up, start up slowly, not full bore, to lessen breakdowns. We even have guys working on fuel cells, for putting them on the back of forklifts instead of batteries. And when you talk renewables out of all of them, I just think the solar thermal is the best for us.”
Schaefer’s voice, always upbeat, seems even more excited when speaking of some of the experiments now going on. “Our oat hulls, from Quaker oatmeal, are now used at the University of Iowa for biomass. We’re thinking of using them in our own operations.”
Then, remember Tropicana orange juice? “Tropicana has so many orange peels and all go into cattle feed right now. What if we burn them to make steam or electricity? Orange peels have Btu content—there’s a lot of oil in orange peels. Is it cost effective? We’re looking into that.”
The enthusiasm Schaefer manifests indicates the commitment companywide that Nooyi speaks of when she says, “...across the world we have unleashed the power of our people to come up with ideas to reduce, recycle, and replenish the environment, and we are making great progress by reducing how much water we use in our manufacturing and the carbon footprint that we put on the environment.”
What about the 2015 goals with the financial meltdown of 2008? Tim Carey, Director of Sustainability and Technology PepsiCo–Chicago says, “Long-term sustainability denizens have seen it before: the economy slows, revenue and profit growth fall, and business directs investments away from projects with environmental or social sustainability benefits. It’s a predictable cycle with unintended consequences—at best you emerge from the economic downturns where you left off, and worse, further behind than when it started. Leading companies have eschewed this formula to emerge from downturns more cost efficient and stronger than their peers.”
Carey points to the Dow Jones and other sustainability indices for evidence for this conclusion. “While not perfect, general trends show that the more sustainable companies perform better. For example, from 2006 through year end 2007, the Dow Jones Sustainability World Index (DJSI) performed seven to 10 points higher than the S&P 500.”
Carey points out that there are reasons to expect better long-term performance from companies that “best integrate sustainability into business decisions.” Those companies, first, must kill “environmental sustainability initiatives with poor economic returns,” as well as opting out of “social initiatives that ignore adverse environmental or economic impacts. Carey looks for that “sweet spot—where the economics of the project equal or exceed benchmark investment thresholds, environmental impacts are reduced, and social networks relevant to your company, its employees, and society are strengthened.
“Deciding when to fund conservation projects is easy,” insists Carey, because “projects that reduce packaging without increasing losses drive unit costs down, and water and energy used more efficiently lowers costs.” Carey claims that it isn’t unusual “to see returns of 20- to 30-plus percent when implementing less wasteful practices. Increasing resource efficiency by several percent per year, while waiting for the economy to rebound, creates competitive advantage.”
In turbulent economic times, Carey says that “companies that derive advantage by embedding environmental efficiencies, not only into operations but into the culture of the company, will find themselves outpacing the competitors who still view these changes as merely a response to regulation or short-term fixes.”
Putting a dollar amount on conservation measures, since 2004, the Quaker Oats, Tropicana, and Gatorade divisions of PepsiCo have “reduced our energy and water intensity by over 20% per pound of product,” says Carey. “That’s saved our combined business approximately $30 million in utility costs. While capital was not required for all these accomplishments, where it was the returns on investment were typically 15% to 20%.”
Carey makes a great point when he says, “Don’t worry if you’re short on conservation ideas, they don’t all have to come from inside your organization. There are equipment suppliers and consulting professionals that can identify quick-return opportunities as can industry trade associations, because when it comes to reducing environmental impacts and protecting employee safety, competing companies are more willing to work together to reach a common, higher objective.”
Perhaps his final comment is the most potent. “If you wait for the economy to recover before addressing sustainability, you will have higher cost structures, less innovative products, or worse, may already be out of the game.”