The
biggest cola rivalry in history is in full swing again as the two top names in
beverages battle for a shrinking soda-loving population.
While
PepsiCo Inc. has diversified away from drinks — Frito-Lay chips drove growth
again last quarter — its focus is back on fixing the fizzling beverage division
in the face of heightened competition from arch-rival Coca-Cola Inc.
“Thebiggest challenge we’re facing is in colas right now,” PepsiCo Chief FinancialOfficer Hugh Johnston said in an interview after the first-quarter resultsThursday. “Competition clearly ramped up advertising on colas and we will dothe same — and have been doing the same — and we’ll do more of it as they do.”
As
the two largest soft-drink brands, Coke and Pepsi have long been chief rivals.
The American companies have jostled for consumer attention with pointed ads
over the decade. Commercials in the peak of the era went so far as to feature
taste tests pitting the drinks against each other.
Shifting
Tastes
In
more recent years, the battlefield shifted. As Americans started to move away
from soda in favor of other kinds of drinks, Coca-Cola and PepsiCo expanded
their portfolios of beverages, putting less emphasis on their core brands.
Consumption of carbonated soft drinks fell to a 31-year low in the U.S. in
2016, according to Beverage-Digest, a trade publication. And PepsiCo
increasingly relied on a different category altogether: snacks.
Still,
the companies’ namesake cola brands remain vital.
“The
key thing is, this is a business that’s highly competitive in North America,”
PepsiCo’s Chief Executive Officer Indra Nooyi said on an earnings call. “There’s
no question about it. It’s a big business. It’s a profitable business. Is it
the same profile of salty snacks? No, but it generates a lot of U.S. cash.”
For
Atlanta-based Coca-Cola, trademark Coke (which includes Coca-Cola classic plus
Zero Sugar and Diet Coke) boosted results in the first quarter. That was a
particularly remarkable feat for Diet Coke, which hadn’t seen growth in North
America since the fourth quarter of 2010.
Soda’s
Comeback?
As
Diet Coke finds its way back into people’s fridges, PepsiCo is determined to
bring growth back, especially after its North America beverages division
weighed down earnings otherwise bolstered by snacks and international sales.
“If
it’s a question of media spending to make sure that the consumer understands
that Pepsi is still a strong vibrant brand, we are going to spend on media,”
Nooyi said. “We’re going to fix this. Period.”
PepsiCo’s
shares rose 1.5 percent Thursday as of 10:45 a.m., while Coca-Cola’s are up 0.5
percent. Both are down since the start of the year.
Purchase,
New York-based Pepsi is not going to give market share to its biggest
competitor sitting down, she added.
“Wedon’t want to be a net share donor,” Nooyi said, “especially in colas. And sowe’ll go toe-to-toe and increase our spending in cola.”
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