PepsiCo escalates marketing spend to better compete against Coca-Cola
- PepsiCo said it will increase its marketing spending and is hoping that new products like Bubly sparkling water and Mountain Dew Ice will help reverse recent declines, according to The Wall Street Journal and a transcript of the CPG marketer's earnings call this week.
- Organic volume for PepsiCo beverages unit declined by 3%, and the segment's operating profit dropped 22% in Q1 2018. Revenue from its North America beverages unit, which contributes about one-third of sales, declined 1%.
- PepsiCo also announced that it is considering separating or spinning off its bottling operations to reverse the declines in the U.S. market. Overall, the company said revenue totaled $12.6 billion and it reported a net income of $1.3 billion.
PepsiCo is attributing its subpar Q1 results to a loss in cola market share to competitor Coca-Cola, which has increased marketing spending on its cola beverages over the past few years. To reverse falling sales as U.S. consumers are favoring less-sugary drinks, Pepsi also sees an increased marketing budget as its solution. The brand is also upping media behind trademark Pepsi and elevating its brand communication, which includes its new "Pepsi Generations" campaign, executives said during the earnings call.
While Pepsico executives did not call out Coca-Cola by name, they did mention the need to be advertising as aggressively as the company's "key competitor," leading to some posit we will see a return to the "cola wars" — a reference to previous periods when each brand targeted the other in its marketing. The difference now is that instead of playing out on TV, digital media will be a critical front in the new battle.
Pepsi Generations supports all Pepsi brands and is designed to help the company get the most of out of its marketing spend across its portfolio. The campaign, which launched earlier this year, is already delivering positive results, including higher brand and advertising recall and regard, but it's too early to tell how it will affect sales, executives said. The company is planning more advertising for Pepsi Zero Sugar and Diet Pepsi with messaging targeting traditional baby boomer customers, as well as recruiting newcomers among millennials and Gen Zers.
In an attempt to drum up interest, Pepsi launched Bubly earlier this year to enter the trendy sparkling water category and reach more health-conscious consumers. PepsiCo has also added to its Mountain Dew brand's lineup of flavors as well, unveiling a new lemon-lime clear version of the drink called Mountain Dew Ice in its Super Bowl spot.
To compete with Coca-Cola, which saw a 3% growth in drink volume in Q1 2018 thanks to positive performances from Coke Zero and Diet Coke products, PepsiCo is increasing its investment in new technology. The company previously said that it will invest some of the millions of dollars it is saving from the new GOP tax plan into e-commerce and digital capabilities.
- Marketing Dive Diet Coke's new flavors, brand overhaul boost Coca-Cola's Q1 earnings
- The Wall Street Journal PepsiCo Plans Ad Blitz to Buoy Its Soda Business
- Marketing Dive PepsiCo allocates GOP tax plan savings to e-commerce, digital investments