- Soda competition heating up again even as snacks carry PepsiCo
- We don’t want to be a net share donor,’ CEO Indra Nooyi says
The biggest cola rivalry in history is in full swing again as the two top names in beverages battle for a shrinking soda-loving population.
While PepsiCo Inc. has diversified away from drinks — Frito-Lay chips drove growth again last quarter — its focus is back on fixing the fizzling beverage division in the face of heightened competition from arch-rival Coca-Cola Inc.
“The biggest challenge we’re facing is in colas right now,” PepsiCo Chief Financial Officer Hugh Johnston said in an interview after the first-quarter results Thursday. “Competition clearly ramped up advertising on colas and we will do the same — and have been doing the same — and we’ll do more of it as they do.”
As the two largest soft-drink brands, Coke and Pepsi have long been chief rivals. The American companies have jostled for consumer attention with pointed ads over the decade. Commercials in the peak of the era went so far as to feature taste tests pitting the drinks against each other.
In more recent years, the battlefield shifted. As Americans started to move away from soda in favor of other kinds of drinks, Coca-Cola and PepsiCo expanded their portfolios of beverages, putting less emphasis on their core brands. Consumption of carbonated soft drinks fell to a 31-year low in the U.S. in 2016, according to Beverage-Digest, a trade publication. And PepsiCo increasingly relied on a different category altogether: snacks.
Still, the companies’ namesake cola brands remain vital.
“The key thing is, this is a business that’s highly competitive in North America,” PepsiCo’s Chief Executive Officer Indra Nooyi said on an earnings call. “There’s no question about it. It’s a big business. It’s a profitable business. Is it the same profile of salty snacks? No, but it generates a lot of U.S. cash.”
For Atlanta-based Coca-Cola, trademark Coke (which includes Coca-Cola classic plus Zero Sugar and Diet Coke) boosted results in the first quarter. That was a particularly remarkable feat for Diet Coke, which hadn’t seen growth in North America since the fourth quarter of 2010.
As Diet Coke finds its way back into people’s fridges, PepsiCo is determined to bring growth back, especially after its North America beverages division weighed down earnings otherwise bolstered by snacks and international sales.
“If it’s a question of media spending to make sure that the consumer understands that Pepsi is still a strong vibrant brand, we are going to spend on media,” Nooyi said. “We’re going to fix this. Period.”
PepsiCo’s shares rose 1.5 percent Thursday as of 10:45 a.m., while Coca-Cola’s are up 0.5 percent. Both are down since the start of the year.
Purchase, New York-based Pepsi is not going to give market share to its biggest competitor sitting down, she added.
“We don’t want to be a net share donor,” Nooyi said, “especially in colas. And so we’ll go toe-to-toe and increase our spending in cola.