PepsiCo is planning to refocus its marketing behind its biggest brands, including Pepsi and Gatorade, after admitting that its decision to prioritise healthier products in its advertising has impacted its full-price sales.
Speaking on an investor call earlier this week (13 February), PepsiCo CFO Hugh Johnson said that while promotional activity and price points have been “consistent” in beverages between PepsiCo and its competitors, “velocities on full revenue have been slower”. What that essentially means is that PepsiCo hasn’t been able to sell at full price as much or as quickly as rivals.
The reason for that, explained Johnson, is that PepsiCo had shifted the focus of its advertising and marketing spend away from its big brands and towards healthier products. But in 2018 the company plans to increase advertising behind its big brands, through both major ad campaigns such as for Mountain Dew at the Super Bowl and through better in-store displays.
“We need to refocus back on A&M [advertising and marketing] behind the big brands and ensuring that, as we build [in-store] displays, the displays are very much reflective of those big brands in a substantive way, both in the shelf and out on the perimeter floor.”
Johnson admitted that will take a few quarters to have an impact on overall pricing levels and sales – key measures for investors – although he says PepsiCo is already seeing “sequential improvements”.
Despite the hit to full-price sales seen last year, Johnson said PepsiCo’s overall strategy has not changed and that while its pricing has to be “competitive in the marketplace”, lower pricing is not part of its strategy to gain market share.
We need to refocus back on advertising and marketing behind the big brands.
Hugh Johnson, PepsiCo
“Our strategy has not changed. We were, in many ways, the author for the industry of the strategy that the basis of competition is around innovation and brand building, and that pricing is something that we would expect to take consistently every year,” he said.
PepsiCo delivered better than expected sales in the fourth quarter, with revenue flat at $19.53bn. But while its snacks business performed well, the key North American beverage unit, which makes up a third of its revenues, saw like-for-like sales drop 3%.
PepsiCo said it has “robust marketing” lined up for 2018, particularly in North America, which includes a new campaign around Pepsi Generations, the launch of Mountain Dew Ice and the introduction of new sparkling water brand Bubly. It is also making more use of data and analytics to “sharpen” real-time marketing messages and offers, while focusing on its ecommerce business, which is now worth $1bn in annualised sales.
CEO Indra Nooyi said: “We remain committed to our strategy to compete on the basis of brand building, innovation and marketplace execution across our portfolio of brands as the best way to create shareholder value over the long term.”
She added: “We will double down on new capabilities in areas such as ecommerce, digital, and brand marketing to make us even more competitive.”