Pepsi needs to play catch-up in marketing. Its ad spending on
beverages has trailed Coca-Cola in both
absolute terms and as a percentage of sales for years. In each of
the past three years, Coca-Cola spent close to $3 billion on
advertising, while PepsiCo spent less than $2 billion promoting its
As a percentage of sales, Coca-Cola spent 8% on marketing in
2010, while PepsiCo spent just 3% on its beverage brands, according
to analysis from Jefferies & Co. Last year PepsiCo pledged a
30% increase in beverage spending, which included a $60 million
investment in "X Factor."
"PepsiCo has very powerful brands, and these brands need and
deserve more support to improve their performance," said John
Sicher, editor and publisher of Beverage Digest.
PepsiCo declined to comment for this article, citing a quiet
period in advance of its Feb. 9 meeting and its fourth-quarter
John Faucher, an analyst with JPMorgan, said PepsiCo is in the
midst of a "blow-up cycle," a phenomenon he's documented at a
variety of consumer packaged-goods players, including Coca-Cola,
Gillette. In the case of PepsiCo , the company reported strong
earnings growth for a number of years, and when that stalled, it
reduced brand investment to sustain growth. It also announced a
restructuring in 2008, acquired its biggest bottlers in 2009 and
lowered earnings guidance for 2011, though none of that was enough
to turn the tide.
In the process, PepsiCo lost a veritable who's who of marketing
talent, particularly on the beverage side. For those who remained,
it's been a ride filled with twists and turns, uphill climbs and,
at times, seemingly out-of -control plummets as execs oversaw logo
changes and weathered management shifts.
Now, much like Coca-Cola did in 2004, PepsiCo must reset and
"The long-term brand-building piece is really where they've
fallen down in the last 10 years," Mr. Faucher said. "But, if
you've got the money and are still in front of the consumer, which
direct-store-delivery brands always will be, there's the ability to
bring the brand back. Consumers might forget what they liked about
Pepsi, but they still see it every time they go to the store."
Analysts and bottlers believe Al Carey, a Frito-Lay veteran who
was named CEO-PepsiCo Americas Beverages in September, is the right
guy at the right time. He impressed industry insiders at Beverage
Digest's annual Future Smarts conference in December by pledging
his allegiance to PepsiCo 's sugary sodas and salty chips.
"We should not demonize these products," Mr. Carey said. "You
can't just try to develop healthy brands alone, you have to also
get behind indulgent brands."
Critics say PepsiCo 's emphasis on developing more-healthful
products has been at the expense of supporting its less-healthful
cash cows, such as Pepsi and Mtn Dew.
"Al Carey will be a positive," said Mr. Sicher. "He is an expert
in the CPG business and knows what's needed to build brands. And
under Al, the people turnover at Pepsi in recent years will
Analysts across-the-board are calling for the snack-and-beverage
giant to increase its ad spending in 2012 by $400 million to $500
million. Much of the additional investment is expected to focus on
North American beverages, though some snack brands could also
benefit. Significant cost-cutting to fund the investment --
including layoffs -- is likely.
manages the Pepsi trademark in the U.S., as well as Gatorade and
Tostitos. BBDO works with Mountain Dew and remains involved with
the Pepsi trademark globally. Goodby Silverstein
& Partners handles Cheetos and Doritos, while Energy BBDO is responsible for Lay's
and Sun Chips.