Some of Pepsi's independent bottlers are equally annoyed at the direction Pepsi's savvy, mediagenic, forward-thinking CEO Indra Nooyi has taken the company: "Is she ashamed of selling carbonated sugar water?" asked Pat Weinstein, the incredulous owner of Weinstein Beverage in Seattle.
Such criticism illustrates the tremendous perils that publicly-traded processed food giants face in trying to reorient any significant part of their business around healthier fare. Investors want to see a company's cash cows continually milked, and they don't care if those cows are contributing to a national health crisis. As Marion Nestle put it in her blog:
Public concerns about obesity put food companies in an impossible dilemma. Even if companies want to produce healthier products and stop marketing to kids, they can't. If they do, they lose sales.Pepsi isn't losing sales -- the company's total revenues were up by 33% to $57.8 billion -- but its flagship product is on sinking ground. In March, Beverage Digest reported that Diet Coke had nudged out Pepsi for the #2 spot among most consumed beverages in the U.S. Original Coke is still at #1.
Short shrift to soda and chips
This is a problem for investors, and of course bottlers, because sugary carbonated drinks remain a huge chunk of Pepsi's business. Yes, we're all drinking less soda than we did in 2005, but the stuff is still America's favorite (purchasable) beverage, with the average American consuming 45 gallons of it a year. And the Frito-Lay snacks division ("fun for you" Lay's potato chips, Doritos, Cheetos and Fritos) brings in by far the most operating profit for the company.
It's hard to imagine a CEO being ashamed of her company's leading revenue and profit generators, but over the past year, Nooyi has probably spent more time talking publicly about a "drinkable oats product" that will be launched in Latin America later this year than she has about the company's flagship colas. And as far as marketing goes, soda has been getting short shrift. Ad spending in the U.S. was $348 million in 2005, but just $153 million last year, while Coke spent $253 million.
Pepsi is trying to remedy this by boosting TV advertising spending for its beverages, particularly soda, by 30% this year. In addition a summer ad campaign for Pepsi ("Summer Time Is Pepsi Time''), the soda will be part of a $60 million sponsorship deal on Simon Cowell's X Factor this fall.
If Pepsi is smart, it should be able to manage the balance between developing healthier foods and selling its big, "fun" brands. But it also means it'll never be the truly responsible corporate citizen and public health darling Nooyi seems to want it to be.
Because investors are essentially demanding that Pepsi not only provide the public with giant bags of Doritos and almost a gallon of soda a week, but that it also continually stoke demand for the stuff with incessant marketing. As Jim Tierney, chief investment officer at money management firm W.P. Stewart, put it: "You just can't go dark on brands and expect them to hold their value.''
Image by Flickr user diazwerks