PepsiCo takes on breakfast giants

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PepsiCo plans to leverage the scale of its breakfast portfolio with joint promotional efforts for its various morning brands, among them Quaker Foods cereals and its troubled Tropicana juices. The effort mirrors the longtime "Power of One" program that has successfully combined merchandising and marketing for PepsiCo's soft drink and snack brands since the late `90s.

Although no details are final, executives at Quaker and Tropicana headquarters are scurrying to develop cross-brand strategies that will include hot and cold cereals, Aunt Jemima pancake mixes and syrups as well as Tropicana and Dole juices. Todd Magazine, VP-marketing for ready-to-eat cereals at Quaker, spearheads the effort, which is a top priority for PepsiCo.

"When you put [all our brands] together, we're bigger than General Mills or Kellogg [Co.] at the breakfast occasion," said Gary Rodkin, president-CEO of PepsiCo's recently developed Pepsi Beverages and Food North America division. Mr. Rodkin did not set a time frame for the launch of the initiative but did suggest that a combined effort for breakfast foods was in the offing.

A Tropicana spokeswoman said 11 months into the integration of Pepsi and Quaker brands, the focus is still on getting systems in place, and a Quaker spokeswoman likewise declined to comment directly on the development of joint initiatives.

"All you have to do is go into Wal-Mart and see the space [Pepsi] has and you get a sense very quickly as to the opportunities the company has to create value-added programs up and down the aisles at retail," said Prudential Securities analyst Jeff Kanter. "The challenge," he added, "is executing on that opportunity."

Unlike soft drinks and snacks, which can easily be merchandised together in stores, retailers point to the difficulty of developing in-store displays that combine refrigerated juices and dry cereals. "We couldn't put those things in the same display because we aren't equipped to do it," said one Midwest retail executive. Even putting the various items near one another would be difficult, he said, due to condensation given off from refrigerators.

A larger problem still might be convincing retailers that Pepsi, which many believe got into cereals and other food categories only because they came packaged with Gatorade when it acquired Quaker Oats Co. last year, is indeed committed to being a breakfast company.

"Retailers are understandably wary, thinking that Pepsi probably won't be in breakfast brands once they have the opportunity to sell them" after the two-year waiting period, said Banc of America Securities analyst Brian Spillane. Even while Pepsi has stated its intention to keep those businesses, he said, it's certainly a hurdle.


While Mr. Spillane said "theoretically [a breakfast initiative] could make some sense," he pointed out that where PepsiCo has successfully co-marketed Frito and Pepsi products is around big snacking events like Halloween and Super Bowl and questioned if the breakfast occasion warranted as much seasonal hoopla.

The success of Power of One, however, suggests that an attempt to similarly bundle breakfast brands is worth a shot. PepsiCo sales materials cite statistics that Power of One displays drive sales three times as much as displays of carbonated soft drinks alone.

But if in-store displays aren't as simple an option, advertising is another area where PepsiCo could leverage the power of its breakfast brands just as it has increasingly done with its soft drink and snack brands. Recently, the company has subtly placed complementary products in ads to suggest soda/snack combinations. For example, a Super Bowl spot for Doritos 3Ds featured a cameo by Pepsi.

Advertising for Tropicana and Dole juices totaled $42.4 million in 2001, Quaker cereals' advertising was $82 million and Aunt Jemima's less than $1 million, according to Taylor Nelson Sofres' CMR. The bulk of those brands are handled by Omnicom Group's Element 79, Chicago.

Reversing Tropicana's slide is a major priority for PepsiCo. The company said last week that second-quarter volume for Tropicana fell 3%.

Regardless of what shape the effort takes, however, another Midwest retail executive put it bluntly: "As far as breakfast goes, to be the dominant player, they've got a long way to go."

contributing: kate macarthur

Fast Facts

2001 ad spend on PepsiCo a.m. brands: $125 million

Affect of `Power of One' displays: 3X sales of standalone soft drink displays

Time since PepsiCo acquired Quaker Oats Co.: 11 months

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