When will companies learn to listen to their consumers? Maybe PepsiCo will now that its profit dropped 10% in the third quarter after it devoted more time to healthier drinks instead of its staples like Pepsi and Mountain Dew. From The Wall Street Journal:
PepsiCo this year shifted resources away from its namesake cola and Mountain Dew toward new products such as its premium bottled-water brand, LIFEWTR, and a sparkling lemonade called Lemon Lemon, finance chief Hugh Johnston said in an interview Wednesday.But those brands weren’t big enough to compensate for the resulting drop in market share for Pepsi and Mountain Dew. Gatorade sales also fell, hurt by weak convenience-store sales and cooler weather compared with the previous two summers.
Pepsico CFO Hugh Johnston on earnings: North America is clearly a challenge from CNBC.
Last December, I blogged about PepsiCo’s decision to push healthier options and even asked if this is what consumers prefer over their usual products.
Pepsi CEO Indra Nooyi wants to make the company a “health juggernaut,” but to keep up with the consumer wants, the company has increased the sugar content of its products.
The Wall Street Journal reported that PepsiCo has fallen “behind the goal it made in 2010 to triple revenue from nutritious products to $30 billion this decade” with only a few successful healthy launches.
In fact, PepsiCo decided to put more sugar into its products and sales started to boom again. Sales of Diet Pepsi went down when the company moved away from the controversial sweetener aspartame, because the taste changed with sucralose. PepsiCo went back to aspartame.
IT’S ALL ABOUT TASTE. From The Wall Street Journal:
These are hard truths for big food companies. Taste is the biggest factor in a snack purchase, according to 66% of baby boomers and 53% of millennials in a March survey by consultancy Alix Partners. When people get together, “they have snacks like potato chips and pretzels. They don’t all sit around and snack on granola bars,’’ says Norman Deschamps at market researcher Packaged Facts.Natural and organic foods and beverages are growing fast—23% to $41 billion the past two years in the U.S.—but are still a small slice of the country’s $425 billion in overall sales, according to retail tracker Spins. Such products are often costlier to develop and harder to scale up. There were up to 50,000 products in a typical grocery store by 2013, up from 15,000 in 1991, but a quarter of them sold less than one unit a month, according to Accenture, a global consultancy.
Despite the evidence I blogged about in December, PepsiCo still devoted more space to the healthier drinks than its regular products.
Nooyi stated that the company will make some changes and use more shelf space for its top products like Pepsi and Mountain Dew. But Johnston’s statement says otherwise:
“We’re on a multiyear journey to move people to healthier products, to lower-calorie options,” Mr. Johnston said. “You’re always sort of managing your pacing. How quickly will consumers change their habits?”He added: “We just got ahead of our skis a little bit.”
Maybe we don’t want to change our habits?
PepsiCo suffered a lot in North America. From CNBC:
The big lesson from the quarter, Nooyi said, “is that it’s an endgame, not an all game. When we [launch] new products, we have to go for new shelf space. The core shelf space, especially in [convenience] stores for the big brands, we have to protect the hell out of it, and that’s what we’re going to do.”The North American beverage business generated revenue of $5.33 billion in the third quarter, compared to $5.52 billion the same period the year prior. Its operating profit dropped 10 percent, to $817 million from $904 million.
CNBC also reported that PepsiCo cut back on “its full-year organic revenue growth target, expecting growth to be about 2.3 percent” instead of 3 percent.
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