PepsiCo's three keys for growth

by Monica Watrous
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Product and packaging innovation is a priority for PepsiCo, which said the percentage of sales for new product launches has steadily increased.

 

PURCHASE, N.Y. — PepsiCo, Inc. is focused on three priorities for sustaining growth in a challenging environment. Indra Nooyi, chairman and chief executive officer, discussed the efforts during an Oct. 9 conference call with analysts.

“As a company, we continue to strengthen our business to position it for continued successful performance well into the future, and we are encouraged by the progress we are making in three areas in particular,” Ms. Nooyi said.

First, the company is leveraging its complementary product portfolio by pairing food and beverage brands in promotional activities.

“A case in point is Mountain Dew and Doritos,” Ms. Nooyi said. “Dew and Doritos have extremely high co-purchase incidence. In the U.S., over 60% of Mountain Dew households buy Doritos.”

Because both brands are popular among video gamers, PepsiCo is partnering with the creator of Call of Duty to provide exclusive player rewards to Mountain Dew and Doritos consumers. In international markets, the company uses joint packaging graphics and point-of-sale material to drive greater co-purchase incidents of Lay’s and Pepsi products.

“In addition to the commercial benefits afforded by these cross-category promotions, we continue to yield cost synergies through continued integration,” Ms. Nooyi said.

Product and packaging innovation is the second priority for PepsiCo, which said the percentage of sales for new product launches has steadily increased.

“And in our biggest market, the United States, we were the largest contributor to retail sales food and beverage growth both in the third quarter and year to date, which really benefited from the strength of our innovation,” Ms. Nooyi said.

For example, this summer’s Lay’s Do Us a Flavor campaign, featuring four consumer-submitted varieties of the brand’s potato chips, helped drive mid-single digit net revenue growth during the quarter. New products from the Quaker Foods unit, including Quaker Express microwavable oatmeal cups and Quaker Warm and Crunchy Granola, contributed to value share gains in hot cereals, ready-to-eat cereal and snack bars during the quarter and year-to-date.

And in beverages, PepsiCo has benefited from expanding its packaging options.

“With greater packaging flexibility, we now have more tools in our kit to drive price utilization and higher margin through price/pack management,” Ms. Nooyi said. “Case in point is our 12-oz glass bottle. which sells at more than 100% premium for a 12-oz can.”

Beverage innovation also has led to improved sales, net price utilization and market share performance for PepsiCo in the United States.

“We held L.R.B. (liquid refreshment beverages) value share in measured channels for the third quarter and year to date, held C.S.D.s (carbonated soft drinks) at retail in the third quarter, led by trademark Mountain Dew, and gained or held value share in a number of important subcategories, including C.S.D.s, sports drinks, ready-to-drink tea and unflavored water,” Ms. Nooyi said.

Indra Nooyi, chairman and c.e.o.: "As a company, we continue to strengthen our business to position it for continued successful performance well into the future..."

 

On its third key priority, productivity, PepsiCo said it remains on track to achieve targeted full-year savings of $1 billion.

“This year we expect to successfully complete the three-year $3 billion productivity program we launched in 2012 and we are now focused on our next generation, five-year $5 billion productivity program announced earlier this year, which we expect will extend annual savings of $1 billion through 2019,” Ms. Nooyi said.

Cost-cutting measures include automating operations to reduce labor and increase capacity utilization, restructuring manufacturing to optimize global footprint, and restructuring go-to-market systems to optimize distribution.

“We remain focused on generating cash and providing attractive cash returns to our shareholders and we are encouraged by the continued progress we have made to strengthen our business, which we expect will make our performance all the more durable and reliable looking to the future,” Ms. Nooyi said.

Third-quarter performance

Net income in the third quarter ended Sept. 6 was $2,008 million, equal to $1.32 per share on the common stock, up 5% from $1,913 million, or $1.23 per share, in the same period a year ago. Net revenues increased 2% to $17,218 million from $16,909 million.

Operating profit for the PepsiCo Americas Beverages segment climbed 2% to $858 million from $843 million in the comparable quarter, and revenue eased to $5,383 million from $5,406 million, reflecting slight growth in non-carbonated beverage volume which offset a 1.5% decline in carbonated soft drink volume in North America.

The Frito-Lay North America segment had an operating profit of $1,025 million, up 5% from $977 million during the same period a year ago. The segment had revenue of $3,526 million, up 3% from $3,424 million.

Operating profit for the Quaker Foods North America segment was $150 million, up 9% from $137 million during the same period a year ago. Revenue for the segment was $586 million, down 3% from $604 million a year ago.

Latin America Foods operating profit was $327 million in the third quarter of fiscal 2014, up 11% from $295 million a year ago. Net sales rose 6% to $2,178 million from $2,049 million.

For the nine months ended Sept. 6, net income attributable to PepsiCo was $5,202 million, or $3.40 per share, up 4% from $4,998 million, or $3.20 per share, during the prior year. Net revenue for the third quarter of fiscal 2014 rose slightly to $46,735 million from $46,297 million.
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READER COMMENTS (1)

By John Murphy 10/13/2014 1:46:45 PM
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