PepsiCo ends Q2 on high note thanks to its ‘innovation engine,’ CEO says

By Mary Ellen Shoup

- Last updated on GMT

PepsiCo CEO Indra Nooyi said the company needs to adjust to a customer market that is becoming more 'niche'.
PepsiCo CEO Indra Nooyi said the company needs to adjust to a customer market that is becoming more 'niche'.

Related tags Pepsico

PepsiCo posted better-than-expected second quarter earnings fueled by a “ramped up innovation engine” across beverage categories and committed focus on consumer preference for premium products.

While overall net revenue fell 3.3% to $15.4bn compared to the same period last year, sales in PepsiCo’s Frito-Lay North America Beverages division rose 0.6% to $5.15bn.

“We’ve achieved this by leveraging our global scale, while simultaneously tailoring products to appeal to local tastes, addressing consumers’ evolving demands for convenient taste and variety from the occasional treat to nutrition by transforming our product portfolio,”​ CEO Indra Nooyi said during a second quarter earnings call.

According to Nooyi, PepsiCo has kept up with consumer demand for premium products by launching and updating several of its beverage products including: Mountain Dew Black Label, new Gatorade G Frost flavors, Propel, Aquafina Sparkling, and a cold-press juice line by Naked Juice.

Nooyi said that new products currently comprise 9% of sales, totalling $5bn, a direct result from the company doubling its R&D spending over the past five years.

Connection with the digital age

In order to stay on top of customers' constantly-evolving demands, tapping into the digital age consumer audience is crucial, said Nooyi.

Mtn Dew Black Label unveiled a "deeper darker DEW" made with real sugar and herbal bitters in March 2016.

Following the launch and popularity of Mountain Dew Kickstart, the company introduced Mountain Dew Black Label, a dark berry soda made with real sugar and herbal bitters intended to convey the “classier side of Dew,”​ Nooyi said.  

To promote the brand and reach its target demographic, PepsiCo exclusively released The Dew Black Label at 600 colleges and universities.

A digital spot was also released called “Gentleman of the Jacket” ​depicting different “gentlemen skaters”​ including Dew athlete and pro skateboarder, Theotis Beasley, as well as mixologists and gamers. In the commercial, each “Gentleman of the Jacket”​ crosses over to the classer side of Dew with the help of putting on a custom jacket transforming their world into a more refined version of itself.

To build further brand recognition, Mountain Dew Black Label extended its “Boldly Refined” campaign, which was launched during the South by Southwest Music Conference and Festival in Austin, Texas. The campaign included a Mountain Dew Black Label Parlor, a "SXSW Takeover" concert, and product seeding at local bars and venues.

Continued focus on ‘guilt-free’ products

Taking into account a market shift away from sugary carbonated soft drinks, PepsiCo launched a number of healthier beverage products in its second quarter.

Making up PepsiCo’s “guilt-free”​ product range, which generates approximately 45% of the company’s net revenue, are Aquafina Sparkling and a cold-pressed juice line by Naked Juice called Naked Pressed.

Aquafina Sparkling comes in three flavors: black cherry dragonfruit, lemon lime, and orange grapefruits, all packaged in slim 12-ounce cans and containing 10 calories each. Aquafina Sparkling will also be available in multipacks containing two flavors, Nooyi added.

Naked Pressed also follows the better-for-you trend by using only whole cold-pressed non-GMO project-verified fruits and vegetables.

Refreshing sports hydration category

The introduction of G Frost flavor lineup by Gatorade helped contribute to the company’s commitment to premium product innovation in the sports hydration category.

Propel also played a large role in the sports hydration growth and drove more than 40% of the enhanced water category volume since the beginning of 2016, Nooyi said. 

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