Change in Strategy from PepsiCo, Inc. (PEP) Augurs Well in the Long Run

PepsiCo, Inc. (NYSE:PEP) is no longer relying on fizzy drinks to drive sales. Best known for carbonated soft drinks, the company has been forced to shift away from products that made it famous, as more consumers resort to healthy eating habits. The change in strategy is paying off; the maker of Frito-Lay snacks having surprised investors with first quarter earnings that came way above the street’s expectations.

Shrinking Carbonated Drinks Portfolio

Consumers around the world are increasingly shunning fast food and soft drinks in favor of healthier options. PepsiCo, Inc. (NYSE:PEP) is now looking to capitalize on the changes as it looks to ensure sales do not stagnate. Paying a great deal of attention on products that include ingredients such as grains, fruits, vegetables, and proteins has already come into play.

Given the change in strategy, sales for carbonated drinks now account for less than 25% of the firm’s total sales. Guilt free products made up of nutrition products and diet beverages now account for 45% of PepsiCo’s portfolio revenue.

Declining Soda Consumption

Pepsi and Cola consumption has dropped by 3.2% in last one year according to Beverage Digest annual report. Coca-Cola, on the other hand, experienced a 1% decline in volume sales. With soda consumption in key markets declining, soda giants have been forced to diversify their operations or risk losing customers.

World biggest beverage brands have come under pressure over concerns they continue to fuel weight gains. In a bid to rebuild, their reputation and keep sales flowing, most of them have been trying to push up sales by focusing more on healthy drinks.

Focusing on carbonated soft drinks according to CEO Indra Nooyi is outdated. Non-carbonated drinks according to the executive will drive all growth in the industry, as more consumers become health conscious.

Healthy Snacks

PepsiCo is not only focusing on beverages with its latest push that seeks to address the needs of nutritionally savvy customers. The snack business has also undergone similar changes a move that helped bolster sales in the recent quarter.

Frito Lay Division continues to act as a soft spot for PepsiCo having registered a 3% increase in sales in the recent quarter. Sales growth of Reduced Fat Doritos helps affirm the fact that the company is on the right track.

Offsetting Soda Consumption weakness

A soda sales decline is a point of concern even though PepsiCo, Inc. (NYSE:PEP) is increasingly shifting its focus to health focused products. Concerned with the decline, the company continues to make changes to how it sales its carbonated drinks.

Repackaging of the soft drinks to meet consumer demand has been one of the company’s play in this case. Smaller bottle as well cans, have helped the soda giant boost sales amidst the downturn. Convenience and portion control also continues to make most of these brands attractive to consumers.

PepsiCo, Inc. (NYSE:PEP) is also trying to boost soda sales by giving the product line a new hipster appeal. The company is aggressively trying to convince customers that soda can indeed be more authentic and craft oriented. The launch of vintage inspired brands Caleb’s and 1893 all but continues to spearhead its efforts on this front.

Bottom Line

PepsiCo, Inc. (NYSE:PEP) is not abandoning the soda business altogether; the same still accounts for a huge portion of its total sales and profit. However, it is crystal clear the company is looking outside carbonated drinks to drive future sales. Broadening beverage portfolio to lessen reliance on sodas for sales is top of the agenda as the beverage giant looks to address changing consumer tastes.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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