PepsiCo Plans 35% Marketing Boost for Snacks Division

PepsiCo will boost advertising and marketing on its North American snack business this year by 35%, while investing in the fast-growing value category with products such as Cracker Jack line extensions, executives said today. The company also pledged to double down on its "Power of One" effort to market snacks and beverages together, a strategy that analysts have criticized in the past. As opposed to beverages, where PepsiCo trails Coca-Cola, the company's snacks business is thriving by most measures. With brands such as Lay's, Doritos and Cheetos, PepsiCo dominates the global savory-snacks category. In 2010 it had sales of $29.9 billion, far ahead of No. 2 Kraft at $5.3 billion. PepsiCo's snack revenue grew 9% and volume was up 4% last year, the company reported. Snacks are forecast to overtake beverages by 2016, growing to 52% of overall revenue from 48%, the company said today. Yet the company sees opportunity for more gains. PepsiCo will devote more marketing resources to the Frito-Lay North America business, focusing the 35% spending increase on mainstream megabrands Lay's, Tostitos and Cheetos. Those three were supported with nearly $71 million in media spending in 2010, according to the Ad Age DataCenter. New products this year will include Doritos "Jacked," billed as a "bigger, bolder, thicker" chip in smoky chipotle barbeque flavor, and Doritos "Dinamita," a chile-lemon-flavored chip in rolled form. Frito-Lay will also make moves in the premium- and value-snacking segments. "The American macro snack consumer is truly bifurcating," said Tom Greco, president of Frito-Lay North America. "As a result, there's rapid growth in both the premium and value segments within macro snacks." (The "bifurcation" theme has been repeated all week by marketers at this week's CAGNY conference, perhaps a reflection of the shrinking middle class.) On the value side, where Frito-Lay failed to gain share last year, the company will have new offerings such as Cracker Jack Popcorn in kettle-corn style and Taqueros Del Sur Totopos tortilla chips. New flavors are also planned for Lay's Stax, including some targeted at Hispanics. The investment could set up a showdown with Pringles, which is expected to get a marketing infusion once Kellogg takes control from P&G this summer. On the premium end, Frito-Lay is putting new energy behind Smartfood Selects, a brand of popcorn, puffed corn and popped chips flavored with herbs and spices. Mr. Greco said the offerings will be sold near other premium snacks rather than by Frito-Lay's mainstream brands. Frito-Lay has also introduced baked snack bites called Twistos to Canada after initially selling them in South America. On the merchandizing front, PepsiCo plans to expand its "Power of One" initiative with more permanent displays and advertising promoting the use of its beverages and snacks together. In the past, such executions mostly focused on holidays or big events like the Super Bowl. The new campaign, which will include digital display but not TV, will feature season-long executions, such as baseball-themed "Double Play" signage touting Lay's and Pepsi , according to one example in materials distributed today to analysts. Other plans are pairing Ruffles Max and Pepsi Max together in marketing targeting young males. Some analysts have questioned the co-promotion strategy, concluding that it dilutes the focus and resources needed by PepsiCo's soda products. PepsiCo has even been pressured to split its snacks and beverage units into two separate companies, following the lead of companies such as Kraft Foods, which is divorcing its global snacks business from grocery brands. "It's a simple fact that consumers think about our beverage and snack brands together," Mr. Compton said. "So to us, having snacks and beverages together in the same company clearly makes consumer sense as much as it does shareholder sense." As BernsteinResearch noted in a report to investors today, Mr. Compton took center stage at the presentation, holding the podium during the question-and-answer session, even weighing in on beverage topics, while CEO Indra Nooyi was "comparably subdued." For BernsteinResearch, "this raised questions in our mind (and similar questions in investors' minds as well, based on early feedback) that perhaps [Pepsi ] was more explicitly positioning Mr. Compton as the leading CEO-successor candidate behind . . . Nooyi."

PepsiCo Plans 35% Marketing Boost for Snacks Division

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