PepsiCo.’s Strategy for Success, 4 Things to Consider
Have you noticed that your beverage of choice is different today than ten years ago? If you are drinking less sugary soda and more sparkling water you are not alone. PepsiCo. which generated sales of $86.4 billion last year is focusing on growth opportunities outside of its core soda business as consumer trends and tastes change. If you are curious about what PepsiCo. is doing to change with the times and stay top of mind then consider these four elements of its strategy.
1. Alcoholic beverages. With consumption of soda falling beverage makers like Coca-Cola and PepsiCo. are finding new ways to keep consumers interested. While shopping for alcoholic beverages you may have stumbled upon Hard Mountain Dew. It’s not your child’s Mountain Dew but an alcohol based version PepsiCo. launched last year. Hard Mountain Dew is 5% alcohol and it’s the first time Mountain Dew has ever contained alcohol. The beverage also has no caffeine or added sugar and contains only 100 calories per serving.
To bring Hard Mountain Dew to market PepsiCo. partnered with Boston Beer. "We've licensed the brand to Boston Beer, and we're providing distribution in some states,” said PepsiCo CEO Ramon Laguarta last year. “Execution is very good. The product is turning very well, high share in those states.” “So it makes us feel positive about the potential of Hard Mountain Dew and the relationship with Boston Beer." Spirits based ready to drink cocktails are hot right now, growing by 226% between 2016 and 2021. This is why both PepsiCo. and Coca-Cola are focusing on the category.
2. Smaller portion sizes. While in the beverage or snack section of your local grocery store you may have noticed smaller sizes of your favourite drinks or chips. This is not an advertising ploy. Snacking grew in importance during the pandemic and has continued to be popular. “Post-pandemic, people have returned to busy schedules and are increasingly choosing convenient options that fit into their lifestyles, including grab-and-go products that can easily be transported,” said Claire Lancaster, head of food and drink at WGSN.
Some consumers also prefer smaller sizes because it allows for better portion control and according to Laguarta that is “a big trend.” Overall PepsiCo. is seeing “huge growth” in smaller sizes within the snacks category, a category which generates more 50% of PepsiCo.’s sales.
Sometimes a consumer’s entry point into a brand will be a smaller sized package. Knowing they don’t have to pay too much for a mini size of a product a consumer may try the product and then later on trade up to a larger size if they like it. For decades luxury brands have sold designer bags that are cheaper than other items within their portfolio hoping that customers will trade up to more expensive items later on.
Another benefit of smaller sizes, which dollar stores often see, is that consumers typically pay more per gram for a smaller size of a product such as a soft drink or a bag of chips.
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3. Energy drinks. Consumers are also turning towards beverages which offer a functional benefit like the ability to cure your afternoon slump. To tap into this growing market last year PepsiCo. made a $550 million investment in Celsius Holdings maker of Celsius Energy drinks. Celsius Energy drinks are caffeinated, sparkling, sugar free and they claim to help you burn fat. Celsius Energy advertises its beverages as a healthier option to other diet and energy drinks.
Wanting to have a larger share in an energy drink market dominated by Red Bull and Monster, in 2020 PepsiCo. acquired Rockstar Energy for $3.85 billion. Acquiring Rockstar “gives us the ability to play in energy from soup to nuts,” said PepsiCo. chief financial officer Hugh Johnston.
“As we work to be more consumer-centric and capitalize on rising demand in the functional beverage space, this highly strategic acquisition will enable us to leverage PepsiCo.’s capabilities to both accelerate Rockstar’s performance and unlock our ability to expand in the category with existing brands such as Mountain Dew,” said Laguarta about the acquisition.
In 2020 PepsiCo. launched Mtn Dew Rise Energy which contains about the same amount of caffeine as two cups of coffee. It also has Vitamin A, C and zinc to boost your immune system as well as a supplement that claims to increase memory. Mtn Dew Rise Energy comes in several flavours to combat the popularly held opinion that energy drinks don’t taste good. “There’s a lot of rejecters out there that think that energy drinks don’t taste good, so we ... wanted to stand for a flavor-forward drink,” said Fabiola Torres, chief marketing officer at PepsiCo. Energy.
4. Healthier products. As consumers become more health conscious, they are drinking less juice. In the past 10 years sales of soda and fruit-juice have declined by 10% and 16% respectively. During that same time period coffee sales increased by 9% and sales of energy drinks doubled.
Sensing the writing on the wall last year PepsiCo. sold a controlling interest in its Tropicana and Naked juice brands to private-equity firm PAI Partners for $3.3 billion in 2021. “Tropicana has been growing pretty well in the past couple years,” said Johnston but it is “slower growth than what we’ve been moving toward.”
Speaking about the sale Laguarta said: it will “free us to concentrate on our current portfolio of diverse offerings, including growing our portfolio of healthier snacks, zero-calorie beverages, and products like SodaStream which are focused on being better for people and the planet.” “In beverages, non-sugar is growing three times the speed of full sugar,” said Laguarta. “If you go (to) more developed markets around the world like Western Europe, the categories are pivoting very quickly to non-sugar. In the UK, for example, the non-sugar segment in beverages is already almost above 80% of the market. So clearly, in beverages, non-sugar is king.” “Some of our innovations in the last couple of years with, for example, Gatorade Zero. That was -- it's a huge innovation. I think it's $1.5 billion in only 3 years and expansive to the category and recruiting new consumers into the brand.”
“So non-sugar, I think, is [an] unstoppable trend in the beverage category,” said Laguarta. “Every brand has a non-sugar leg that is going to be the focus leg for the brand in the foreseeable future.”
A shift towards healthier foods can also be found in PepsiCo.’s snacks business. “What we call permissible snacks, which are the kind of baked or popped or kind of not fried snacks, they're growing much faster than fried snacks,” said Laguarta. PepsiCo. has also said its products such as PopCorners, Smartfood, and Sun Chips, that focus on “more nutritious snacking” are posting double-digit growth.
Continuing down the path of healthier snacks, last year in partnership with Beyond Meat PepsiCo. launched a vegan jerky snack which has 10 grams of protein, no cholesterol, and is made from plant-based ingredients like peas and mung beans.