PepsiCo reduces reliance on colas, focusing on ‘guilt-free’ beverages instead

By Mary Ellen Shoup

- Last updated on GMT

PepsiCo is turning its attention to healthier beverage options like its Naked cold-press juice line
PepsiCo is turning its attention to healthier beverage options like its Naked cold-press juice line

Related tags Soft drink Pepsico

PepsiCo believes a decreased reliance on colas and its increased portfolio of “guilt-free” products will put it ahead of competitors in 2016. 

‘Guilt-free’ beverages are drinks that are below 70 calories per 12 oz. serving, according to the company.

CEO Indra Nooyi says that guilt-free products now account for approximately 45% of the PepsiCo’s portfolio by revenue.

Options like bottled water and unsweetened ready-to-drink teas, which PepsiCo refers to as “good for you”​ options, accounted for 25% of its first quarter sales. Demand was particularly strong for its Naked cold-pressed fruit juices and Lipton RTD teas, growing 60% and 10% in the first quarter outside of North America.

Cola falls out of favor

Consumer interest in health and wellness keeps growing, Nooyi noted, speaking during this week’s earning’s call for the company’s first quarter results.

“We've broadened our beverage portfolio to lessen our reliance on colas and today we have the leading non-carbonated beverage portfolio in the US,”​ Nooyi said.

“In fact, globally just 12% of our revenues come from trademark Pepsi and less than 25% comes from carbonated soft drinks on a global basis.”

To respond to this shifting consumer demand, PepsiCo has invested in R&D to create advantaged sweetness solutions and lower calorie products.

“We are aggressively moving our portfolio to package and product combinations with fewer calories,” ​Nooyi said.

An example of this execution is Mountain Dew Kickstart, with 40 calories per eight ounces, said Nooyi. Now in its third year, Kickstart generated more than $300m in estimated retail sales in 2015 and posted a 34% volume growth in the first quarter of 2016.

Individualized packaging

Nooyi said that PepsiCo is seeing traction with selling its soda in smaller portion sizes.

PepsiCo shifted approximately 6% of its carbonated soft drink volume/mix from traditional two-liter and 12-ounce multipack packages to higher-margin, more profitable single-serve and alternative multipack beverages.

PepsiCo ended the first quarter of 2016 (12 weeks ending April 19, 2016) with net revenue of $11.86 bn, compared to $12.2bn in the same quarter last year - a 3% drop.

However, Nooyi told analysts not to be discouraged by the highly volatile international market.

“Based on the innovation pipeline, based on the execution capability of our businesses and knowing what we've sold into customers around the world, at this point we feel optimistic about our revenue guidance for the year.”

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