PepsiCo CEO says North America Beverages unit ‘still has tremendous room to improve’

By Mary Ellen Shoup contact

- Last updated on GMT

“On the one hand, there's a huge push towards health and wellness. On the other hand, they want to go back to products they know the best, but they're not consuming it in the quantities that they used to in the past," says PepsiCo CEO.
“On the one hand, there's a huge push towards health and wellness. On the other hand, they want to go back to products they know the best, but they're not consuming it in the quantities that they used to in the past," says PepsiCo CEO.

Related tags: Pepsico

PepsiCo’s CEO says 2018 will be a year of 'robust marketing in innovation' for its legacy and new, innovative beverage brands after organic sales of the company’s North American Beverages segment - its largest division - slipped by 3% in Q4 2017.

Full year organic sales across the company’s entire portfolio of snacks and beverages increased 2.3% to $19.53bn compared to 2016; supported by a 5% organic revenue increase generated by Frito-Lay North America and double-digit growth in emerging markets such as Vietnam, Turkey, Thailand, the Philippines, and Argentina.

“To be clear, while our North American Beverages segment's top line performance did improve compared to the third quarter, overall, its performance still has tremendous room to improve, and we are taking the right steps to realize those opportunities,”​ CEO Indra Nooyi said during the company’s Q417 earnings call.

Balancing legacy products with innovative small brands

Since the beginning of 2018, PepsiCo has increased its marketing efforts with a packaging innovation campaign of its premium water brand, LIFEWTR​, in addition to the launch of a new sparkling water brand, bubly​, aimed at disrupting the sparkling water category.

For its core brands, the company introduced its nostalgic Pepsi Generations campaign featuring past celebrities like Cindy Crawford promoting the brand. PepsiCo also debuted its lower-calorie Mountain Dew alternative, MTN Dew Ice, in a cross-promotional TV advertisement also featuring Doritos Blaze during the this year’s Super Bowl game.

According to goPuff (a convenience store delivery service) sales data​ across 20 US cities, Mountain Dew sales increased 17% within 90 minutes of PepsiCo’s MTN Dew Ice Super Bowl commercial compared to a ‘regular Sunday.’ goPuff also saw a 13% bump in sales of Pepsi shortly following its ‘Pepsi Generations’ commercial.

“On the one hand, there's a huge push towards health and wellness. On the other hand, they [consumers] want to go back to products they know the best, but they're not consuming them in the quantities that they used to consume it in the past,”​ Nooyi said.

“We talk about reinvesting back in the big brands, but a lot of the growth is coming from the small brands, so we have to launch those brands, too.”

Nooyi added that there is a constant struggle on how to launch new innovative brands without taking shelf spaces away from its core beverage brands such as Pepsi and Mountain Dew.​  

“We are trying to tweak this whole small brand innovation which will become big over time, but how do we incubate it in our distribution system and specifically where in the store should it go? Should it go and take space from our big brands, or should it have new incremental space? … that's what we're working through,”​ Nooyi said.

E-commerce reaches $1bn in sales

According to Nooyi, the company’s investment in e-commerce across multiple channels has helped drive solid top line growth in 2017 and as result, PepsiCo’s e-commerce business now accounts for roughly $1bn in annual retail sales.

“We are leveraging big data and predictive analytics to sharpen real-time marketing messages, dynamic merchandising and tailored offers,”​ Nooyi said.

“Furthermore, as a company, we will double down on new capabilities in areas such as e-commerce, digital, and brand marketing to make us even more competitive.”

Nooyi added that PepsiCo will continue to monitor what type of products consumers are buying through online platforms and brick-and-mortar starting with major markets such as the US and China. 

“I think China and the US are cutting edge in terms of retail disruption,”​ she said. “We're going to have to watch and see how it evolves in the other markets.”

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