Sunday Strategist: PepsiCo Knows You Love Doritos
Sunday Strategist: PepsiCo Knows You Love Doritos
(Bloomberg Businessweek) -- Hold your Kombucha and coconut water, PepsiCo has a new growth strategy: Mountain Dew.
In a new-wave world, the soda and snack giant is playing the hits and its strategy is paying off. PepsiCo earnings last week were a surprising treat for any executive slogging away in a mature business and not quite sure what to make of the fast-changing world and its Bitcoin, electric scooters and snail-slime skin cream.
Pepsi juiced its organic revenue by 4.5% (and its stock price by 3%) largely by selling more of its eponymous soda, Doritos and Fritos. It even sold more cereal and pancake mix.
Sure, Pepsi is chasing wellness trends as much as everyone else. It has a new sports drink made from watermelon and sea salt, and its bubly sparkling water is becoming ubiquitous. But it's setting a slow and leisurely pace in its new product push.
Change is tough and it’s easy to panic. Skittish executives, ever wary of acting too slow, have a tendency to pour resources into a new new thing too quickly. If the move is drastic enough, the swoon of the core business becomes a self-fulfilling prophecy—a downward spiral.
Big Soda knows this better than anyone. New Coke, the paragon of innovation gone awry, was essentially a response to Pepsi and Jolt cola siphoning off market share.
Today, Pepsi is treating its innovation as just that, hoping it disrupts the core business but not assuming that it will. CEO Ramon Laguarta told Wall Street last week that the company is aiming to "have the right amount of resources to invest in new platforms, versus taking money from the core and giving (it) to those new platforms.”
What’s more, PepsiCo is iterating—its soda scientists turned cherry into “wild cherry vanilla” and brewed up some mango-flavored Pepsi. They have a new retro brand called 1893 made with kola nut and ginger, and a new version of Mountain Dew developed in partnership with video gamers.
Meanwhile Pepsi MBAs are spending more time and money trying to figure when and how people buy its standard fare. Pepsi soda and snacks are booming, in part, because the company is routing more of that stuff to convenience stores and packaging it up in smaller bags and bottles. Consumers feel less gluttonous and profit margins are higher (companies that stock pantries for their employees like them too).
Packaging, it turns out, can be a great antidote to competition. Green Mountain Coffee survived the Starbucks land-grab thanks to Keurig and its K-cup. SodaStream International built a drinks empire on a lack of packaging, and Pepsi eventually bought it in a $3.2 billion deal. But don't look for Mountain Dew in that mix anytime soon.
“We’re running it as a separate business that should be agile and nimble and going after actually disrupting the bottle business,” Laguarta said. “That is how we want to run this company.”
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To contact the editor responsible for this story: Silvia Killingsworth at skillingswo2@bloomberg.net
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