Speaking to analysts during the firm’s Q1, 2013 earnings call, CEO Indra Nooyi said that one strategy to address declining soda volumes in North America was to reallocate resources to other, sexier, beverage categories, or to focus on faster-growing emerging markets.
However, instead of simply accepting decline as inevitable, market leaders in “mature low growth businesses” should seize the initiative and reinvent their core categories, she said.
“I think it's very important that established players reinvent their categories as opposed to allowing others to reinvent them and push them out. There are many, many examples of big companies especially companies based here in the US, that did not reinvent their categories.
“So I think we… grow responsibly and wait for international growth but reinvent North America simultaneously, which is why we have stepped up all our R&D investments in sweeteners, flavoring agents, new processing technologies.”
We continued to invest in R&D to break some of the compromises that [have] caused consumers to leave the cola category
In the latest quarter, PepsiCo posted strong growth in teas, chilled juices, ready-to-drink coffee and sports drinks in North America, but saw cola volumes decline, she said.
“The cola category continues to be a challenge. We took pricing in this declining category and continued to invest in R&D to break some of the compromises that [have] caused consumers to leave the cola category.”
Naturally sweet: Stevia, monk fruit, brazzein, monatin, hernandulcin, phyllodulcin, trilobtain, thaumatin, monellin
As to how it plans to reinvent cola, PepsiCo has not given details, although on an earnings call in February, Nooyi said “new natural sweeteners and flavorings”would “alter the trajectory of our cola business in a meaningful way”.
While PepsiCo recently filed a patent application for zero calorie colas and other beverages containing the steviol glycoside Reb-D (which lacks the bitterness of Reb-A), it is not clear whether this is what Nooyi was referring to in February, or whether PepsiCo is looking to commercialize colas containing completely new natural sweeteners.
Several natural sweeteners including the plant-derived compounds monatin, hernandulcin, phyllodulcin and trilobtain; and sweet-tasting and/or flavor-modifying proteins brazzein, thaumatin and monellin; are mentioned in the patent application above. However, not all of these have regulatory clearance in the US market - yet.
Currently, PepsiCo uses stevia (listed on pack as 'steviol glycosides') in its Pepsi Next mid-calorie cola in Australia (but still uses HFCS, aspartame, Ace K and sucralose in the US). However, Diet Pepsi is sweetened with artificial sweeteners aspartame and ace K.
And while monk fruit extract (luo han guo) - the other major natural high intensity sweetener available to formulators - has been gaining ground in recent months, it has not been used in any major cola launches - yet.
Q1, 2013 breakdown: We’re beginning to gain share in sports nutrition
three months to March 31, PepsiCo’s group sales volume rose 4% for snacks and 3% for beverages, driven by strong growth at Frito-Lay North America, Latin American snacks, international beverages, and snacks and beverages throughout Asia, the Middle East, and Africa.
In the Americas, volumes rose 3% in foods and fell 3% in beverages, although Mountain Dew “significantly outperformed the overall carbonated soft drinks category” and new launch Kickstart continued to gain momentum, said Nooyi.
Meanwhile, Lipton Pure Leaf tea, Tropicana Farmstand, Naked, Starbucks’ Iced Coffee and Refreshers, and Gatorade, all performed well, she added.
“We’re beginning to gain share in sports nutrition even though we had low priced competition come in with really aggressive pricing.”
Click here to read more about Reb-D.
Click here to read about Pepsi’s interest in novel protein-based beverages.
PepsiCo told the New York Times this morning that it had held meetings with Nelson Peltz’s Trian Fund Management after it emerged (via SEC filings) that the fund had acquired a significant stake in PepsiCo and Mondelez International.
“In recent weeks, we have held meetings with Trian to discuss and consider their ideas and initiatives as part of our ongoing evaluation of all opportunities to drive long term growth and shareholder value,” Pepsi told the NY Times in a statement.
“Trian is a respected investor, and we look forward to continuing constructive discussions with them.” Click here to read the NY Times article.