PepsiCo trims nonessential advertising and marketing spend as COVID-19 conditions continue
PepsiCo, which is seeing Americans eating more breakfast and snacks at home and buying fewer drinks on the go, is being a bit cautious when it comes to its marketing spending during the coronavirus pandemic.
The food and drink marketer had raised its advertising and marketing spending in the first quarter. But now, it is “reducing nonessential advertising and marketing spend to reflect the realities of the current environment,” Chief Financial Officer Hugh Johnston said on a pre-recorded call Tuesday.
PepsiCo's first-quarter sales rose nearly 8 percent and would have gone up more than 5 percent even without the rush to stock up on groceries at the end of the period, which closed on March 21, the company said.
Chairman and CEO Ramon Laguarta outlined four stages of emotional and behavioral changes PepsiCo sees for consumers in developed markets such as the U.S., where many people are still staying home. “The first is preparation and prevention, the second is confinement and cocooning, the third is a restricted recovery and the fourth is a new normal,” Laguarta said on the pre-recorded call. Most developed markets have made it into the latter stage of the second phase, he said. Later, on a call with analysts, Laguarta said the chances of every country and state opening up and not having second waves of COVID-19 “I think are low.”
While people may be making large grocery purchases, either in stores or online, that include PepsiCo products such as Quaker oats and Tostitos chips and dips, they are making fewer trips to convenience stores, gas stations and restaurants, putting pressure on its beverage business, in particular. The negative impact on the beverage business is more significant than the positive impact on snacks, Laguarta said.
Beverages did well in the first quarter, including growth in the Pepsi and Mtn Dew brands, Laguarta said. Brands had higher levels of advertising and marketing support in the quarter, which included Super Bowl ads for Mtn Dew Zero Sugar and Pepsi Zero Sugar.
PepsiCo also said Tuesday that it would begin to distribute Vital Pharmaceuticals Inc.’s Bang Energy drinks in the U.S., a deal that comes after PepsiCo in March announced its plan to buy Rockstar Energy Beverages. It is also working on new ways to use its Mtn Dew brand in the energy drink space.
“We’re going after that consumer occasion with multiple vectors,” Laguarta said on the call with analysts, noting that, along with the energy drinks it owns and will now distribute, it also sells packaged coffee drinks through its relationship with Starbucks.
Marketing plans include promoting recipes that include Quaker oats and other products, Laguarta said. He also pointed out the increased snack occasions at home, taking breaks during the day and watching TV, occasions he says were not there six or seven weeks ago. While stockpiling was seen earlier on during the pandemic, snacks have expiration dates and there’s a repurchase cycle being seen in the snack business, Laguarta said.
The PepsiCo CEO's upbeat comments about snacking were amplified later in the day by Campbell Soup Co., which said retail sales of its Kettle Brand chips soared 44.5 percent, Cape Cod chips jumped 39.5 percent and Snyder’s of Hanover pretzels rose 19.1 percent, in the four weeks ended April 19, citing IRI data. However, Campbell’s Pepperidge Farm Goldfish crackers saw such sales fall 6.1 percent, as it is dealing with short-term supply challenges due to strong demand for the product, which tends to be popular in homes with young children.
Like other marketers, PepsiCo said its 2020 financial outlook is no longer valid given the COVID-19 situation. Johnston, the CFO, said PepsiCo cannot reasonably predict when the environment will improve or how people’s habits will evolve. PepsiCo's second-quarter so-called organic sales, which strip out factors such as deals, are expected to decline by a low single-digit percentage rate, he said.