Slipping further behind Coca-Cola and hearing the footsteps of a charging Dr Pepper, Pepsi is once again calling on its heritage as a fighter.

The soda brand, which is under new leadership at the brand and corporate levels, is “taking big swings” and leaning into a challenger mindset, brand executives said. These are hardly new concepts for Pepsi, which has played a prickly disruptor for decades.

But the company is directing that energy differently today, focused less on its blue-can cola, and more on its ascending zero-sugar cousin, as well as on Wild Cherry Pepsi (and its zero-sugar variety). The strategy aims to meet consumer demands for wellness and flavors that are carrying the growth burden in the declining world of carbonated beverages. Pepsi is also stepping up its efforts to associate itself with food, which brand execs say is the largest occasion for cola.

While those may be the brand’s best bets, results over the last year show that Pepsi has underperformed rivals Coke and Dr Pepper. PepsiCo’s carbonated soft drink portfolio, which includes the Pepsi, Mtn Dew and Sierra Mist/Starry families, hasn’t gained dollar share in the U.S. since the second quarter of 2021, according to Beverage Digest. In 2023, volume of Pepsi flagship fell by 4.7%, allowing Dr Pepper, which saw a 0.2% decline in volume, to finish the year with a slight market share advantage over Pepsi (8.34% to Pepsi’s 8.31%; Coca-Cola was first by far with 19.2% share).

Through the first half of this year, regular Pepsi saw volume decline by 5.8% and dollar sales drop by 1.5%. Making the environment trickier for legacy soda brands are prebiotic competitors such as Olipop and Poppi, which are well behind the big players in volume but growing much faster and demonstrating that functionality can play in the carbonated beverage space—and support higher prices.

Customer sentiment may also be challenging Pepsi, especially among the younger consumers with whom the brand has long associated. According to the brand tracking firm Tracksuit, Dr Pepper has overtaken both Coca-Cola and Pepsi as the most relevant drink for the 18 -to-34-year-old demographic, with the greatest percentage of poll respondents agreeing with the statement “is for people like me”—the strongest indicator of consumers moving from consideration of a brand to preference for it, Tracksuit stated.

Those same consumers commonly describe Dr Pepper as “innovative,” “unique” and “different,” whereas Pepsi’s brand associations are “okay,” “classic” and “traditional.”

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“As a legacy brand, Pepsi has the opportunity to differentiate itself through creative advertising that makes the brand distinctive—particularly among the key 18 -to-24-year-old demographic, who lack nostalgic ties to its history,” Matt Herbert, co-CEO of Tracksuit, stated in emailed remarks.

“We are absolutely a challenger brand and I think we are at our best when we are facing a challenge,” said Jenny Danzi, senior director at Pepsi. “I think we have a healthy respect for the competition, and we’re focused on how we can gain share in this incredibly competitive category.”

New team

Danzi this summer took charge of Pepsi’s marketing efforts. That work had previously come under Todd Kaplan, whose role was chief marketing officer of Pepsi before he left Pepsi in July for a marketing role with Kraft Heinz.

Kaplan’s departure was among many moves over the last year inside PepsiCo’s Pepsi Beverages North America unit. Kirk Tanner, who was CEO of PBNA, was named CEO of Wendy’s in February; he was succeeded by Ram Krishnan, a former Frito-Lay CMO and CEO of Pepsi’s international beverages business. Shortly after Kaplan departed, Pepsi brought in Mark Kirkham as senior VP of marketing for the carbonated soft drink portfolio. That role last belonged to Zena Srivatsa Arnold, who left the brand last year to become CMO at Sephora.

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Duane Stanford, editor and publisher of Beverage Digest, said he felt the reassembled beverage team at Pepsi would be more aggressive in addressing its share losses.

“At some point, you cannot continue to lose some of the share that they lost and let that be status quo,” Stanford said. “It’s almost an imperative.”

Stanford said his views were influenced by rumblings from Pepsi’s meeting with bottlers in Las Vegas this summer, with Krishnan pledging the brand would take “disruptive big swings” rather than “playing it safe.”

“Does that mean they’re going to go and try to outgain Coke? I think that’s probably not likely, just given the fact that they have a broad LRB [liquid refreshment beverage] focus, and they have the big Frito-Lay snacks business,” Stanford added. “But I do think it’s an indication that they’re not content to continue to lose the kind of share that they had lost.”

Relevance

Some observers say recent soda industry dynamics are more a reflection of Dr Pepper’s marketing strength than a shortfall at Pepsi. Dr Pepper, which is also pushing a zero-sugar version, has consistently flexed its advantage on flavor over colas, picking up a wider audience as it goes. 

Bryan Gildenberg, CEO of the consumer goods consultancy Confluencer Commerce, compared Dr Pepper’s overtaking of Pepsi to Modelo Especial capturing Bud Light last year, only without the controversy.

“Reaching younger consumers means reaching a multicultural audience, and Dr Pepper’s marketing and taste profile seem to be doing a great job with that,” Gildenberg said.

To be sure, winning with any one brand matters less to PepsiCo than to its rivals, given the advantages of the snack business and diversified drinks portfolio also under the PepsiCo umbrella. PBNA’s focus is on gaining share of the larger “liquid refreshment beverage” market, which today is valuing hydration and better-for-you options well ahead of colas, Stanford said.

“In general I’d say Pepsi has a much broader portfolio of brands and products, and the cola category is less of a growth driver for them than Coke or KDP [Keurig Dr Pepper],” Gildenberg said. “As a result, their marketing and product innovation isn’t as energized as their competitors.”

Others say Pepsi may have lost some relevance. Pepsi’s full-throttle packaging rebrand of 2023—meant to emphasize the “unapologetic enjoyment” at the heart of its brand—appears to have had little effect on the trajectory so far, according to a marketing consultant familiar with the beverage industry.

“You reinvent your packaging not just to have better shelf presence, you reinvent your packaging in order to communicate a new idea that is going to drive growth,” said the consultant, who spoke on the condition of anonymity. “So what is the new idea that’s being communicated in the packaging that’s connected to a growth strategy? I can’t tell you the answer to that question.”

Pepsi executives have said the introduction of black to Pepsi’s color palette as part of the redesign in fact signals a growth vehicle in Zero Sugar, with “pulses” in the design representing the brand’s long association with music and youth culture. Pepsi, however, may have sacrificed some equity in music by giving up its sponsorship of the Super Bowl halftime show in 2022, ending a 10-year run. Apple Music now sponsors the halftime show. 

“If you believe in connecting yourself to your equity in music, then why did you give up the halftime show at the Super Bowl, which is probably the country.s largest single continuous music event,” the marketing consultant said, calling the decision a lost opportunity for Pepsi. “Think of all the content you could have created out of that halftime show. Instead, all they did is essentially put a logo on stage when Rihanna was performing."

At the time of the Super Bowl breakup, Pepsi said the move was part of an evolving strategy to bring music and entertainment to fans in new ways. An emerging artist program called the Pepsi Music Lab was introduced in 2021 but appears not to have been updated since 2022. 

In marketing, the brand has frequently dipped into past music associations, re-airing retro videos from 1980s artists or most recently, remaking its 2004 Roman epic “We Will Rock You,” which also promoted the movie “Gladiator II” and Pepsi’s official NFL sponsorship.

Underestimated

There are reasons to be optimistic. Though it got a later start than its Coca-Cola rival, Pepsi Zero Sugar is now growing faster. Through the first half of this year, Pepsi Zero Sugar grew volume by 12% and now controls 1.2% of carbonated soft drink (CSD) volume share, Beverage Digest figures show. Pepsi Zero Sugar evolved from Pepsi Max and was reformulated in early 2023. Coca-Cola Zero Sugar (which dates back to Coke Zero in 2005 and was last reformulated in 2021) grew by 4.6% in the same period and now holds a 4.3% CSD volume share—more than half the size of regular Pepsi.

Pepsi is primarily marketing black-can Pepsi Zero Sugar alongside regular Pepsi. Wild Cherry Zero Sugar is a “secret weapon” for the brand, Danzi said. “It’s delicious, it looks beautiful, it’s indulgent, it’s zero calories,” she said. “We have a lot of fun challenger mindset work coming on that portfolio in the coming months.”

Pepsi’s creative triumphs, including “More than OK” from the 2020 Super Bowl and the “Pepsi Challenge” from 1975, have fought back against notions of the brand being underestimated. In new creative for its ongoing “Better with Pepsi” food campaign, Pepsi aggressively gets into the homes of pizza-eaters, leaving angry pizza deliverymen spouting bleeped-out expletives.

When asked about the tone of the “Chase Cars” ad, Danzi said Krishnan had challenged PepsiCo marketers to “step up to the plate” and embrace a challenger mindset, while injecting fun and energy into the brand. “I’d say we’re very front-footed in this content, and soda should be fun,” she said.

More importantly, Danzi said, Pepsi has “every right to win in food.”

Kirk Thompson, a partner and chief marketing officer with fractional CMO firm Chief Outsiders, said he viewed “Chase Cars” as a classic example of Pepsi’s spirit.

“The challenger mindset is Pepsi’s key DNA—part upstart-swagger, part new-hero—and always about storytelling to restage the game,” Thompson, a former Coca-Cola marketer, said in emailed remarks. “Over the years I think we’ve all seen Pepsi lean into a Pepsi generation voice for the times, as part of stirring up what often becomes a flavor/function story. With this first new work, chasing-the-pizza is both literal and liquid.”

Danzi said focusing on upside opportunities is the way forward for Pepsi. The brand bolstered its creative team by inviting BBDO back into its roster for the “Chase Cars” pizza ad. BBDO, which served as Pepsi’s ad agency for 48 years, joins VaynerMedia, TracyLocke, Motive, Alma, OMD and Acceleration Community of Companies (ACC) on Pepsi’s agency roster.

“Having this clarity of vision and really being focused on how we attack upside for the business is unleashing wild creativity,” Danzi said. “We’ve got an amazing roster of creative partners. We have an amazing internal team. And being able to focus against food, and focus against Zero, is letting us be even more creative and take these really big swings.”