PepsiCo is making a significant investment in its “permissible portfolio,” rolling out a barrage of innovations centered around “no artificials” and positive nutrition. This strategy, combined with enhanced marketing efforts, aims to counteract the pressures from tariffs and declining consumer confidence that have negatively impacted sales and volumes in North America in recent quarters.
Although it’s still early in the process, CEO Ramon Laguarta expressed optimism regarding the improvement in organic volume trends for the company’s North American convenient foods segment in Q2, which concluded on June 14.
He noted that the gains, which also include increased market share in key subcategories, can be partially attributed to the company’s three-pronged strategy comprising heightened commercial activities, focused innovation, and improved in-market execution.
“During the quarter, we took assertive actions to improve the future profit performance of our North American convenient foods business,” Laguarta and CFO Jamie Caulfield stated in joint prepared remarks.
In a call with investors yesterday, Laguarta mentioned that these actions and the resulting sequential improvements in the North American market should enable the overall company to return to the lower end of its long-term algorithm within the next three to four quarters.
“I don’t have a magic ball, but clearly the business is making progress,” he said. “We are becoming much more competitive in multiple sub-segments of the category and remain granular in our investments, allowing us to enhance value and innovate our portfolio.”
Marketing campaigns drive brand awareness of better-for-you options
The first pillar of PepsiCo’s initiative to promote its permissible portfolio features a dual marketing campaign.
Celebrating the 50th anniversary of the renowned Pepsi Challenge, the brand launched a revamped campaign this summer: the Pepsi Zero Sugar Taste Challenge, which challenged consumers to blind taste tests between its sugar-free option and Coke Zero Sugar.
In tandem, PepsiCo sustained its ‘Food Deserves Pepsi’ marketing campaign, resulting in heightened brand awareness, volume growth, net revenue increases, and better market share performance, according to Laguarta.
Consequently, “Pepsi Zero Sugar delivered strong double-digit volume and net revenue growth in the quarter and year-to-date, while Regular Pepsi also showed growth in both metrics,” he affirmed.
In the realm of better-for-you beverages, Laguarta highlighted that the company gained market share in sports drinks and enhanced water segments. “Functional hydration offerings, such as Propel, continued to deliver strong volume growth and double-digit net revenue growth in the second quarter and year-to-date,” he remarked.
PepsiCo plans to build upon this momentum by expanding the presence of zero sugar, functional hydration, and sports nutrition products in away-from-home settings.
Looking ahead, executives stated that the company will refine its advertising and marketing expenditures to generate a greater return on investment.
PepsiCo will also enhance activations through improved visual identities, product claims, and point-of-sale merchandising while focusing on “greater precision on in-store placement” and enhanced digital communications.
Innovation: In with the good, out with the ‘bad’
The second pillar of PepsiCo’s growth strategy is accelerating the innovation of better-for-you options, eliminating unwanted ingredients and incorporating those that consumers desire.
Facing pressure from regulatory bodies to eliminate artificial dyes, PepsiCo plans to remove artificial colors from foods sold in K-12 schools by the beginning of the upcoming school season. Additionally, it aims to “restage” Lay’s and Tostitos with no artificial colors or flavors by year’s end and introduce extensions of Cheetos and Doritos without such additives.
As public scrutiny over the safety of seed oils intensifies, PepsiCo is also looking to increase the use of avocado and olive oil across its offerings.
Moreover, the company intends to “enhance certain products with protein, fiber, and whole grains later this year and into next year,” including within the Frito-Lay and Quaker portfolios while elevating brands already made with whole grains, such as Sun Chips, which it expects to generate high-single-digit net revenue growth by 2025, surpassing $700 million in net revenue.
Innovation will also emphasize enhancing value through varied pack-price architecture and multipack assortments that promote portion control and accessible price points.
Improved in-market execution
The third pillar of PepsiCo’s plan to advocate for its permissible portfolio focuses on refining its in-market execution, thus enhancing the company’s value proposition.
This strategy involves expanding the variety of value brands, such as Santitas, and “rebalancing promotional depths and frequencies towards better everyday value,” according to the executives.
It also includes enhanced cost-reduction measures, such as optimizing manufacturing, consolidating distribution when feasible, and meticulously managing general and administrative costs.
