Pepsico Inc. (PEP) is determined to regain its lost position as the #2 US beverage in the world. Pepsi to meet this goal wants to go back to its roots and promote its flagship product Pepsi Cola once again.
Keeping this in mind, Pepsi launches its new advertising campaign for Pepsi-Cola after almost three years. It is a pronounced signal that the retail giant is focusing on its biggest brand that had sank to No. 3 in U.S. soda sales last year, defeated by Diet Coke.
As reported by The Wall Street Journal, in the U.S., Pepsi-Cola and Diet Pepsi saw sales drop 4.8% and 5.2% last year, compared to Coca-Cola and Diet Coke’s modest slip of only 0.5% and 1%.
Chairman and Chief Executive Indra Nooyi has been held responsible by the investors for distracting customers with the less calorie options and moving their eyes off the company's biggest brand name.
She has been also blamed for emphasizing on Pepsi's healthy food line like oatmeal and Gatorade at the expense of sodas hoping to yield higher revenues from Pepsi's Health Food segment to $30 billion by 2020.
PepsiCo’s health line products still make up only about 20% of revenues. The bulk still comes from drinks and snacks including Lay's potato chips, Doritos corn chips and Pepsi-Cola, which is by far the company's highest selling product with about $20 billion in annual retail sales globally.
Frito-Lay North America, PepsiCo's biggest profit engine, is battling with the rising commodity costs and PepsiCo's health and wellness portfolio is encountering its own set of problems. Over the past five years, PepsiCo's Tropicana fruit juices have been losing market share to Coke's ‘Simply’ juice brand, while Coke's Powerade continues to reduce Gatorade's popularity.
The expense on advertisement campaigns for soda was also waning. While PepsiCo spent $348 million on soda ads in the U.S. during 2005, almost as much as Coke that had spent $377 million. By the end of last year the company had more than halved it’s spending to $153 million, while Coca-Cola (KO) spent $253 million, according to Nielsen Co. that tracks advertising.
The company skipped soda ads for the 2010 Super Bowl for the first time in nearly a quarter-century, the Journal (which journal) reported. Instead it moved ahead with a $20 million online charity initiative but that didn't really help it sell soda.
Now, PepsiCo says it plans to spend about 30% more this year on TV advertising for its North American beverages, with soda being in prime focus. In addition to the summer ad campaign “Summer Time Is Pepsi Time”, Pepsi will also be regaining market through its "X Factor'' advertisement. The company also recently launched new TV ads for Diet Pepsi and Pepsi Max, two smaller-selling colas.
The new attention to beverages is paying reaping some benefit. North American beverage sales volume climbed 2% in the first quarter of 2011 from a year earlier, boosted by a 20% surge in Gatorade, rebounding from declines in 2008 and 2009.
Pepsico holds a Zacks #3 Rank, translating into a short-term Hold rating.
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