Nooyi made her surprisingly candid remarks during an address at the Sanford Bernstein Strategic Decisions Conference in New York yesterday.
Sanford Bernstein analyst, Ali Dibadj, asked Nooyi whether trends within PepsiCo Americas Beverages (PAB), with volume sales down 5% in Q1 2013, pricing up 5%, were secular or cyclical?
PepsiCo’s boss replied it was important to talk about liquid refreshment beverages (LRBs) as a whole and not just carbonated soft drinks (CSD).
She noted that 60% of the $100bn US market for LRBs involved non-CSDs, while within carbonates colas were a smaller percentage and declining.
“So I think there is a maniacal focus on cola that is not the right way to look at a beverage market that is so huge,” Nooyi said.
‘Irrational behaviour in marketplace’
Hinting at PepsiCo’s plan to pursue ‘hybrid everyday value pricing’ for LRBs across the US – to build value and stop the bulk of sales being squeezed into heavy promotional periods during vacation periods – Nooyi said it was “very important that all the players play a sensible game in this business”.
“I think short-term pricing action to pursue volume is a wrong strategy in this sort of market, and the more people focus on carbonated soft drink volume and the more people focus on cola volume, you’re going to see more irrational behaviour in the marketplace.”
Despite payroll tax distress in the US and poor weather that hit PAB in Q1, Nooyi said the market was shifting more to non-cola beverages like Mountain Dew, but said the cola category had not seen much by way of innovation.
“So I look at…what we’re doing in R&D, in a big profitable category with lots of US cashflow. Let’s see how the game plays out.”
‘I didn’t say Stevia or Reb D. Good try.’
Nooyi said that – contrary to some investors and sell-side analysts three years ago – she predicted that CSDs would decline in the US, and that she drove PepsiCo to invest in technology as a result.
“When we go and talk to consumers especially in the US, they love the bubbles, they love the caffeine, they love the taste of cola. What do they not like? They don’t like the sugar levels. And recently they don’t like artificial sweeteners,” she added.
Claiming that “Stevia unfortunately does not work well in colas”, Nooyi said PepsiCo developed mid-calorie option Pepsi NEXT, which she claimed was “holding its own” and had found a niche.
Work the firm was doing with natural sweeteners and flavoring agents could address barriers to consumption “while the consumer still remains in love with CSDs” and bring back lapsed users.
But Nooyi refused to be drawn by Dibadj’s observation that PepsiCo was “placing a lot of weight on this Stevia-based Reb D”.
“I didn’t say Stevia or Reb D. Good try,” Nooyi replied.
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