Pepsi Under Pressure

It’s not easy selling carbonated sugar-water. Or rather, the selling part is all too easy. The hard part is steering a course between the conflicting desires of shareholders and activists. Shareholders want profits. That means selling more of high-profit-margin products like Pepsi and Doritos. Activists want companies to stop pushing unhealthy products like Pepsi and Doritos, and to focus on healthier — but less profitable — products.

See this story, by Mike Esterl and Valerie Bauerlein, for the WSJ: PepsiCo Wakes Up and Smells the Cola

…The snack-food and beverage giant is launching the first new advertising campaign for its flagship Pepsi-Cola in three years—offering one of the most visible signs PepsiCo is throwing new weight behind its biggest brand after it sank to No. 3 in U.S. soda sales last year, trailing not only Coke but Diet Coke….

When industry market share numbers came out in March, showing Pepsi-Cola slipped to No. 3, analysts quickly accused PepsiCo—and Chairman and Chief Executive Indra Nooyi—of taking their eyes off the company’s biggest brand….

There’s a lesson here for activists who think that reforming corporate behaviour is a simple matter of willpower, that companies can shift to healthier foods (or to less-violent video games) if only they had the guts to try it. Shifting your business practices in a way not endorsed by consumers is, well, a recipe for disaster.

Then again, maybe that’s a pretty decent outcome, from an activist’s point of view.

What’s the long-term prognosis? An ebb and flow of corporate strategy, in response to a range of pressures. Activists will win a few battles, as well as surely losing a few. Forcing companies to do what you want means forcing consumers to consume what you want. Because as everyone in business knows, while it’s simply not true that “the customer is always right,” it surely is true that the customer is always the customer.

3 comments so far

  1. Barbara Kimmel on

    Chris- please forgive the following random thoughts. They all come together at the end!

    I love Coke and Pepsi (have since I was a kid), but I will not consume products with high fructose corn syrup. This doesn’t make me an activist, but more of a picky consumer, so I was thrilled when Pepsi introduced its Throwback line a few years ago. I have wondered whether this somewhat healthier alternative has cannibalized the traditional brand, but apparently Pepsi has permanently added it to its product line.

    I don’t know that the accusing “analysts” looked beyond quarterly numbers to the reasons behind the slip. But what we do know is that Indra Nooyi (a vegetarian) is trying to up the ante on “better for you foods” by 2020.

    http://money.cnn.com/2010/04/27/news/companies/indra_nooyi_pepsico.fortune/index.htm

    We also know that what Dov Seidman calls “The Journey to Creating a Culture of Principled Performance” may require a period of sacrifice for certain stakeholders.

    Rather than meeting the needs of the “activists” and the analysts, I would like to believe that Indra Nooyi’s long term goal is to meet the needs of stakeholders beyond shareholders. Along the way, there may be some sacrifices.

  2. Brandwashed on

    It’s too bad the media focus is more on Pepsi losing the “Cola battle” rather than their long-term thinking on healthier foods. I hope we are (finally!) moving towards a society where 10 years from now, we will look back at Pepsi’s ahead-of-the-curve thinking and applaud them for their forward-looking perspective instead.

  3. Rand Pearsall on

    The WSJ ran an article a few years ago about the US sales impact of Mexico Coke (cane sugar). It was almost a one-to-one cannibalization. Now you can get the Mexican Coke in Costco. It’s a bit expensive but our family taste tests confirmed it is better. They used to have Throwback too but I’m not sure if they still stock it.

    HFCS is one thing. There should be much more concern about the partially hydrogenated trans fats that are still in a lot of foods. And about how the government allowed a claim of “0” trans fats when there are plenty of trans fats in the product. Ironic that butter and lard may actually have been the healthier alternative all along. And the products tasted better back then.


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