PepsiCo Americas Beverages CEO, Al Carey, says his business is seeking a ‘sustainable fix’ to regain value share, with pack size limitations vis-à-vis Coke one issue being addressed via new launches.
Speaking at Deutsche Bank’s Global Consumer Conference in Paris yesterday, Carey (who has been in his job since September) said that simply lowering prices to win back business was unsustainable, with the firm focused on “holding or improving our value share” by the end of 2012.
Discussing issues that had thwarted Pepsi’s US beverage business in recent years, Carey said: “Our bottling system did not invest in flexibility at plant level, so we couldn’t make [some] products. It’s hard for me to believe that the PepsiCo bottling system was unable to make, say, a 500ml 12-pack PET in a shrink wrap.
“The answer is – we couldn’t make it. So we’ve been working with some of our more creative bottlers to get some of these [new pack sizes] into the market. We like the results very much. Starting now, we have three packs that we like a lot.”
New 'value' pack sizes
These were new 7.5oz cans, 1.5l and 20-unit packs due for release this quarter, Carey said, with new flexible production lines scheduled to be up and running in Q3 ahead of a bigger roll-out for these pack sizes in 2013.
"We're looking at interesting value packs - so the consumer isn't looking at the same old 12 or 24-pack at predictable prices. These are new and different types of package that are not so predictable on price but bring value: Multipack PET products, a 7.5oz little can of Pepsi, even glass.
"This gives you an opportunity to play the margin mix game, and the retailer and us make more money out of these packages. The beer business does an exceptionally good job of managing packs and mix."
Carey said: I would also say that our competitor [the Coca-Cola Company] did a better job on this – but we can do way better.”
Other past mistakes included focusing Pepsi's US beverage A&M spend on 20 priorities rather than the ‘big three’ (Gatorade, Pepsi and Mountain Dew) and – within the bottling network – a focus on productivity over service levels, to the detriment of sales, Carey said.
PepsiCo’s distribution system was also upside-down, he added, with the firm focused on “shoving” 50% of annual volumes (at unduly low prices) into a nine-week per year holiday period (in terms of grocery sales), with prices up to 60% higher at other times, which meant a non-holiday sales slump.
While this was not PepsiCo’s problem alone, Carey said – it was also hurting rivals and retailers across carbonates – it was an endemic category issue that was thwarting growth, which the firm was addressing by incrementally narrowing the seasonal pricing gap.
Meanwhile, Pepsi itself was being reconfigured – via the ‘Live for Now’ campaign begun in April, to take Pepsi back “to what it felt like in the days when we were growing the business and feeling good about it”, Carey said, with a focus on youth, sports and music.
Taking Pepsi to the NEXT level
Pepsi’s single-serve business was up in the year to June 3, he said – noting that this was a good indicator of brand health, given that the channel was less affected by promotional price changes or holiday periods.
“I’m very excited to see Pepsi growing for the first time in a very long time. It’s not the case on the larger formats…but four per cent on the Pepsi Cola brand [through single-serve] is a good number for us,” Carey said.
Carey said the firm also felt “very good” about new mid-calorie cola Pepsi Next, with the firm ahead of its 25m first-year case sales figure.
“Some people say, ‘well you launched Pepsi Edge ten years ago in this space – what’s different?’. Because of the taste, this product tastes very much like regular Pepsi, and we’re finding this product highly incremental in pulling back lapsed cola drinkers that we've lost over several years," he said.