Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors

PepsiCo: Good for you, not for shareholders

IN OCTOBER 1996 the cover of Fortune magazine showed Roger Enrico, then the chief executive of PepsiCo, trapped in a Coke bottle under the headline “How Coke is kicking Pepsi’s can”.

Ten years later, just after Pepsi had surpassed Coca-Cola in market capitalisation for the first time in their 108-year rivalry, the same magazine ran another big story on the cola giants. It admitted that it was wrong to have declared Pepsi defeated and lauded it as one of America’s best-run companies.

Fast forward another six years and Coke is again kicking Pepsi’s can. Both are losing cola drinkers in America as consumers switch from fizzy, sugary drinks to healthier water, tea, juices and sports drinks.

But whereas Coca-Cola has lost on average 2% a year in like-for-like volume of fizzy drinks in America since 2004, Pepsi has lost 3%, according to Sanford C. Bernstein, an investment bank. That means its American drinks business has shrunk by about 20%. Coke’s Simply juices and its lower-priced Minute Maid are taking share from the fruity concoctions of Pepsi’s Tropicana. And Coke’s sports drink, Powerade, is knocking spots off Gatorade, Pepsi’s brew for athletes.

Faced with mounting investor dissatisfaction about Pepsi’s stagnant share price, the food-and-drinks giant recently embarked on an effort to relaunch the company.

On February 9th the group announced that it was cutting 8,700 jobs, or 3% of its workforce. Having underinvested in its flagship beverage brands for years, it is increasing investment in marketing and advertising by $500m-600m. It has some catching-up to do: at the end of 2010 Pepsi spent 3.3% of sales on advertising compared with 8.3% of sales at Coca-Cola, according to Judy Hong, who follows drinks makers for Goldman Sachs.

Pepsi is also pinning its hope on the launch across America on March 26th of Pepsi Next, a new soda sweetened with both high-fructose syrup and artificial sweeteners which has 60% less sugar than classic Pepsi. Angelique Krembs of Pepsi says the new drink is aimed at consumers who are keen to imbibe less sugar with their cola but dislike the taste of diet drinks.

She splits this mostly male group in two: “dualists”, who switch between regular and diet (and sometimes mix the two), and “resistants”, who never touch either.

Will Pepsi’s reset be enough to win over investors? Pepsi Next is dividing opinions. “We have seen this movie before,” says Mark Swartzberg, a drinks analyst at Stifel Nicolaus, a bank. In 2004 Pepsi launched Pepsi Edge, a mid-calorie soda, which Coca-Cola matched with a new mid-calorie brew called C2. Both disappeared from the shelves after a few years…..

The Economist: Read the full article