PepsiCo lessens its reliance on fizzy drinks as ‘guilt free products’ now account for 45% of revenue
Relying on colas to drive sales is a thing of the past for PepsiCo, which now sees less than a quarter of its global sales come from fizzy drinks and nearly half come from healthier products.
Chief executive Indra Nooyi made the claim on the company’s quarterly earnings call earlier today (18 April), taking time to outline just how little the company now depends on a fizzy drinks category that has become hard to grow.
Just 12 per cent of its revenues come from Pepsi and less than 25 per cent come from carbonated soft drinks worldwide. Such is the extent of those changes that, over the past five years, PepsiCo has shifted around 6 per cent of its carbonated soft drink volume mix from traditional two lire and 12-ounce multi-packs to higher margin, more profitable single-serve and alternative multi-serve packages. It’s a shift emblematic of slowing demand for fizzy drinks, which has seen both Pepsi and rival Coca-Cola attempt to offset the losses by pushing smaller cans and aluminium bottles that have higher margins.
PepsiCo’s growth through nutrition has also been lifted by the popularity of its “guilt-free products” (everyday nutrition products plus diet beverages and other beverages that are below 70 calories per 12 ounces) and snacks with low levels of sodium and saturated fat. Guilt-free products account for approximately 45 per cent of the portfolio by revenue.
Consequently, those healthier products are growing faster than the company portfolio as a whole; products the company calls “everyday nutrition”, which includes products that provide positive nutrients, like grains, fruit, vegetables, and protein. Additionally, products that are naturally nutritious, like water and unsweetened tea, now account for almost 25 per cent of the company’s revenue. According to PepsiCo, Mountain Dew Kickstart, a fizzy fruit-flavoured lower calorie drinks brand, saw its volumes jump 34 per cent year-on-year in the quarter, buoyed by demand for new flavours such as watermelon and blood orange.
“We've invested in R&D to create advantaged sweetener solutions and lower-calorie products, and we're aggressively moving our portfolio to package and product combinations with fewer calories,” explained Nooyi.
Marketing has played a key role in that shift, with more budget being funnelled to back lower-calorie products. And PepsiCo plans to increase the nutrional profile of its snacks and foods through the introduction of products such as Smartfood Delight, which grew over 75 per cent in the quarter. Reduced-fat Doritos also grew 30 per cent in the period.
PepsiCo, which is well known for junk food brands such as Pepsi and Doritios, has been working to target more health-conscious consumers since 2011. In that time, the food and drinks market has been flooded with artisanal alternatives that people are prepared to pay more for. To that end, PepsiCo has stepped up its innovation efforts around those efforts, the most recent being the launch of its craft soda.
PepsiCo’s revenue dropped 2.9 per cent in the first quarter, though were ahead of analysts’ expectations.