Pepsi is using soda as secret weapon in a surprising strategy to beat Coca-Cola (KO, PEP)

pulse

April 26, 2018 8:17 PM

PepsiCo forgot about its soda-drenched roots as it expanded into health food in recent years — and the company suffered the consequences. Now, PepsiCo is investing in ads for its trademark soda brand.

PepsiCo and Coca-Cola have both been expanding into healthier options, such as water and snacks, in recent years as soda sales have declined.
Now, it seems the beverage giants are doubling down on soda.

PepsiCo tried to erase its soda-drenched roots as it expanded into health food in recent years — and the company suffered the consequences.

The company's beverage sales fell 1% in the most recent quarter, PepsiCo reported on Thursday.

"Simply put, while most parts of the business are performing well, recent losses in cola market share in North America have led to subpar top-line and bottom-line performance over the past three quarters," CEO Indra Nooyi said in a call with investors.

"The overwhelming driver is that, despite moderately increasing our media on trademark Pepsi over the past three years, our share of voice has fallen dramatically relative to our key competitor, who has substantially stepped up their media spending on colas over the past two years," Nooyi continued. "To address this, we have allocated increased media to trademark Pepsi."

While Nooyi doesn't specifically name the competitor in question, it is very clearly Coca-Cola.

The company reported on Monday that its Coca-Cola brands helped drive sales, with 4% volume growth in the most recent quarter. Diet Coke returned to growth, while Coca-Cola classic sales grew 3% and Coca-Cola Zero Sugar experienced double-digit growth by volume.

Both Coca-Cola and PepsiCo have been aggressively expanding into categories outside of soda in recent years.

PepsiCo especially has attempted to represent itself as not just a soda company, but a company that sells healthier drinks and snacks. In April 2016, the company announced that less than 25% of sales were from soda, as the company invests in snacks and non-carbonated soft drinks — something some analysts say has been to the detriment of Pepsi's sales.

"I think [Pepsi] is falling victim to media hype" in its soda strategy, RBC Capital analyst Nik Modi said in June 2017. Soft drink sales "are growing when you do the right thing... It's about the relevancy of the brand."

Recently Coca-Cola has made a major investment to win over customers. While soda consumption has declined in recent years as people ditch sugary drinks, Coca-Cola found success advertising its cola brands under the "One Coke" umbrella and in its Diet Coke relaunch earlier this year.

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