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PepsiCo CEO on the threat of fresh: Indra Nooyi plots mastery of muted US retail market

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By Ben Bouckley+

24-Jul-2014
Last updated on 24-Jul-2014 at 21:42 GMT

Jamie McCaffrey/Flickr
Jamie McCaffrey/Flickr

PepsiCo CEO Indra Nooyi says the company is positioning itself as the highest growth food and beverage manufacturer in a ‘relatively low growth’ US retail landscape where fresh food is trending strongly.

Reporting PepsiCo’s Q2 2014 results yesterday, Nooyi was asked by analyst Bill Schmitz from Deutsche Bank why the US food and beverage categories “have been so weak recently”.

PepsiCo’s net revenue rose 0.5% in the 12 weeks ending June 6 2013 to $16.807bn, while net income was up 3% to $2.025bn, with Nooyi claiming strong results in a “challenging and volatile macro environment” globally.

“I think overall food and beverage has decelerated from years ago,” Nooyi replied to Schimtz’ question on the US. “People are consuming differently. I think there’s been a trend towards fresh produce, fresh grocery products, more making your food at home as opposed to buying packaged food and beverages.”

Nielsen statistics for the year to December 28 2013 show vegetable, fruit, deli prepared foods, fresh seafood, bakery, fresh meat and deli cheese categories all trending up strongly for dollar trend, volume trend and price.

So how does PepsiCo plan to address this threat? Nooyi cited PepsiCo’s strong brands (their food and beverage complementarity) its innovation pipeline and powerful distribution systems into retail stores.

Pepsi leads the US retail pack in terms of growth

She added that PepsiCo was the largest contributor to growth among the Top 30 manufacturers in US retail.

“So I think as long as we keep innovating and leveraging our distribution system and really helping the retailers offset some of their labor costs through our DSD systems in high-velocity categories, we should be able to drive growth,” Nooyi said.

PepsiCo is also developing complementary food and beverage offers in its culinary centers for foodservice and is driving “a lot excitement” in this channel, she added, working closely with major players – from Buffalo Wild Wings to 7-Eleven and Taco Bell.

“I think more and more food service customers are coming to us and saying ‘what can you do for us to drive traffic and to drive tickets’?” Nooyi said.

“It doesn’t matter if somebody comes in to buy a product from the C-Store. Can they also be attracted to stop by the foodservice side and pick up something for immediate consumption?”

Therefore, Nooyi said, PepsiCo was working in a relatively low growth market and positioning itself to be the highest growth food and beverage company.

Still winning share versus Coke

If this ambition seems slightly pyrrhic, the performance of PepsiCo’s North American beverage business was less so – the company has held or gained share against Coke in the major channel over five quarters now.

“We held or gained value share across a number of important sub-categories including CSDs, sports drinks, RTD teas and chilled juice,” Nooyi said.

“And we grew retail sales in major channels in the US for regular CSDs led by trademark Mountain Dew just up mid-single digits, and with our non-carbonated portfolio for Gatorade, Lipton Tea, Starbucks Coffee and Naked Juice,” she added.

Innovations: Pepsi Spire, Baja Blast, Mini Cans

On the innovation front, Nooyi said she was excited by the trial of custom-beverage fountain Pepsi Spire in select US locations (it will launch across nationwide this year) and the success of Mountain Dew Baja Blast – the long-time Taco Bell summertime exclusive that hit retail shelves from May 5.

Pepsi also launched Mountain Dew Solar Flare – launched in tandem with Doritos Loaded – in 5,500 7-Eleven stores earlier this month, and is leveraging the wider brand’s high purchase coincidence with Doritos.

Echoing Coke CEO Muhtar Kent, who praised the 7.5oz Mini Can for its contribution to an improved price/mix during Q2, Nooyi said PepsiCo was seeing double-digit growth for these cans and 12oz glass bottles.

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