PepsiCo, the US drinks and snacks company, has signalled that it will renew its focus on its core “indulgent” brands. The move marks a shift in strategy after mounting criticism from investors that it had invested too much in less profitable health products.
“We cannot forget about what I call the indulgent core businesses,” said Albert Carey, chief executive of PepsiCo Americas Beverages. “If you’re going to do the healthy, you have to do the core, because we still have a very strong business in the core.”
Mr Carey, who until September was head of PepsiCo’s Frito-Lay North America business, pointed to research showing that about 10 per cent of US consumers avoid unhealthy snacks at all times, while about 25 per cent are “conflicted” and try to eat healthy but sometimes indulge, and 65 per cent care mostly about taste and convenience. He said that in the beverage industry the numbers are similar, with about half of consumers primarily wanting taste and convenience.
“You can’t just try to promote and develop healthy brands alone,” Mr Carey, speaking at a Beverage Digest conference this week, said. “You have to also get behind the indulgent brands.”
Mr Carey pointed to Frito-Lay “bar food” products such as taco flavoured Doritos and hot wing flavoured Ruffles, which have been flying off shelves at retailers, as evidence that the company cannot lose focus on its “fun for you” products.
Investors have urged PepsiCo to refocus on its core brands after it lowered its earnings outlook earlier this year and its namesake cola brand fell behind Diet Coke. The company is expected to announce a multiyear plan to revitalise the business early next year and analysts from Bernstein Research estimate that PepsiCo could invest as much as $400m to support its beverage brands in North America in 2012.
Mr Carey said he was optimistic that the core carbonated soft drinks brands would show improvement next year and said that developing those brands would be his top priority.
Bill Pecoriello, chief executive of Consumer Edge Research, said that Pepsi lost market share because of a lack of investment and marketing and that the “magnitude and effectiveness” of its new investment will determine if the company regains the confidence of Wall Street.
Other analysts said they were pleased with the tone of Mr Carey’s remarks about carbonated soft drinks and expressed hope that the sentiment was shared by Indra Nooyi, PepsiCo’s chief executive.
“I am absolutely proud of selling [carbonated soft drinks],” Mr Carey said. “I don’t think we should demonise these products.”