If PepsiCo has a chip on its shoulder about always being second in the cola market to Coke, at least the company puts it to good use. The biggest slice of PepsiCo's business now comes from Frito-Lay, the world's leading manufacturer of potato chips. The group was also far quicker than its rival to exploit the fast-growing non-carbonated market. Smart acquisitions such as Tropicana juice and sports drink Gatorade, a strong presence in bottled water, and smart partnerships with Unilever's Lipton and Starbucks have helped to counter its rival's strength in restaurant "fountain sales". However, PepsiCo has struggled in recent years to maintain growth, especially in its carbonated drinks portfolio. A massive investment since 2008 in "Project Refresh", which aimed to completely rejuvenate the group's brands, yielded only limited results and the group has been forced to combat activist investors calling for the drinks and snacks businesses to demerge as separate companies.
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|Gatorade||Golden Grain Pasta|
|Quaker Oats||Near East|
|SoBe beverages||Dole Juice|
|Mountain Dew||Propel Fitness|
|7-Up Argentina||Tropicana India|
|Gatorade China||Quaker Foods Brazil|
Adbrands Weekly Update 23rd Feb 2017: PepsiCo promoted Greg Lyons to chief marketing officer of North America Beverages. He takes over from Seth Kaufman, who moves to a newly created role as president, North America Nutrition.
Adbrands Weekly Update 26th May 2016: PepsiCo has consolidated virtually all its brand PR across Western Europe with a newly created Interpublic agency that will comprise a team drawn from London subsidiaries Canvas Blue (part of Golin) and DeVries Slam. The biggest loser from the review is thought to be independent Freuds, most of whose PepsiCo business will transfer to the new entity. The main exception will be Pepsi Max, according to The Holmes Report.
Adbrands Weekly Update 7th April 2016: PepsiCo reshuffled senior managers in the wake of Tom Greco's resignation as CEO of Frito-Lay North America to lead retailer Advance Auto Parts. His predecessor at Frito-Lay, Al Carey, currently CEO North America Beverages, will take back supervision of the business in addition to his current duties, with a wider role as CEO, PepsiCo North America. Vivek Sankaran, previously COO, becomes president & COO, Frito-Lay North America, while Kirk Tanner moves up to president & COO, North America Beverages.
Adbrands Weekly Update 25th Feb 2016: Ads of the Week: Gatorade "Don't Go Down". Here's another inspirational spot for Gatorade from TBWA New York. There are some striking clips and an admirable message, but if we're honest, we're getting just a little fed up with Lionel Messi's ubiquitous presence in multiple ad campaigns. Yes, he's one superlative football player - as these clips amply demonstrate - but seriously how many endorsement partners does the man need? And the sentiment-heavy voiceover and musical backing is also way way overdone. But, man, that footwork is extraordinary!
Adbrands Weekly Update 18th Feb 2016: Exchange rates left their scars on several more US-based packaged goods companies: it's becoming the general trend in this year's reporting season as a result of the strong dollar. Currencies knocked back PepsiCo's 5% organic growth to a 5% decline in reported revenues, which weighed in at $63.06bn. Net income shed 16% to $5.45bn as a result of a $1.4bn impairment charge against operations in Venezuela. Nevertheless, said chairman-CEO Indra Nooyi, "We are happy to report that we met or exceeded every financial goal we set for 2015, demonstrating consistent performance in the face of volatile macros." Yet again, Frito-Lay snacks were the elephant in the room. Frito-Lay North America alone contributed almost a quarter of global revenues ($14.8bn) and nearly half of global profits ($4.3bn). North America beverages are 40% higher than snacks in total sales but a third lower by profits.
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Free for all users | see full profile for current activities: Pepsi-Cola was first formulated in 1898 by druggist Caleb Bradham. Although it was then just one of literally hundreds of drinks launched to emulate the success of Coca-Cola, Bradham's company built up a strong position for itself during the early years of the century, franchising more than 30 bottlers throughout the US. In 1920, however, Bradham was ruined after speculating wildly on the price of sugar, one of the drink's key ingredients. He tried to sell his invention to Coca-Cola in 1922, but was turned away. The following year he found another speculator prepared to buy the trademark, but it was almost too late to save the business, and by 1931 only two bottling plants remained.
Pepsi-Cola was rescued by a temperamental drugstore operator named Charles Guth. He had acquired the Loft chain of candy stores during 1929 and one of its biggest lines was Coca-Cola. He felt he deserved a bulk discount and badgered Coke's sales department for several years over this, but to no avail. Finally, in a fit of pique, he announced he would stop stocking the drink altogether unless he got a better deal. When there was still no response from Coke, he was obliged to live up to his threat and dropped the brand. Customers were furious, so Guth tracked down Pepsi, now on the verge of a third bankruptcy, and bought the business, getting his own chemists to reinvent the drink so that it tasted as much like Coca-Cola as possible.
Inevitably, the Atlanta company retaliated with a lawsuit, claiming that Guth was passing off his Pepsi to Loft customers as Coca-Cola. In reality, the drink was no threat at all, since sales outside Guth's stores were minuscule. But neither Guth nor Coke were prepared to back down. In 1934, Guth launched a new challenge. In order to offer twice as much Pepsi for the same price as a 6-ounce nickel bottle of Coke, he began buying up used 12-ounce beer bottles and filling them with Pepsi. This ploy worked, particularly in the poorer parts of Depression-torn America. By the end of the year, Guth was turning a handsome profit. A new legal war broke out when Guth resigned from Loft Stores to concentrate on marketing the beverage. Now it was Loft which faced bankruptcy, so its shareholders sued Guth, and finally won back control of Pepsi in 1938.
When new boss Walter Mack took control of Pepsi in 1938, he found a business facing litigation from Coca-Cola in 24 countries around the world. Coke had spared no expense to assemble a daunting legal team determined to eradicate the name Pepsi-Cola from the face of the earth, especially in those countries where it didn't even yet exist but where Coke foresaw substantial potential market for cola. There were occasional victories - both Canada and the UK threw out Coke's legal challenge. In the US, Pepsi scored a significant success in what was then the largely overlooked "Negro market" from 1940 onwards after it set its first ever African-American salesman, Herman T Smith, the challenge of establishing Pepsi as the "Black" Coke. (Later Pepsi hired a team of other black salesman to build upon Smith's breakthrough work). But otherwise Mack's case seemed hopeless until by sheer chance he stumbled on evidence that Coca-Cola had previously bribed another imitator to close its business. Hugely embarrassed by this revelation, Coke backed down. To the enormous frustration of the entire Coca-Cola legal team, Coke president Robert Woodruff met up with Walter Mack, and agreed not only to acknowledge the Pepsi-Cola trademark in the US, but to drop all its worldwide lawsuits, provided Mack kept the pay-off allegations to himself.
Despite cordial relations between the two presidents - Woodruff later tried unsuccessfully to persuade Mack to join him at Coke - the animosity between the two companies was firmly established by the whole episode and has raged on ever since. For years afterwards, Coca-Cola employees chose to ignore the existence of Pepsi, despite its growing importance in the US market during and after the Second World War. Famously, the "P-word" was never mentioned within Coca-Cola, with internal memos referring instead to "the competition", "the imitator" or even "the enemy".
By the 1950s, Pepsi had become a tangible threat to Coke. Mack had been skilful in building market share with minimum marketing spend, but maximum creativity. Amongst other strategies, he had invented radio jingles in 1939 and got America humming the Pepsi tune long before Coke taught the world how to sing. Mack's post-war successor was even more steeped in marketing strategy. New Pepsi president Al Steele was a former advertising executive from DMB&B, now married to Hollywood star Joan Crawford. The two were tireless promoters of their brand, touring the country to open stores and meet customers. In 1959, Steele died of a heart attack, but Crawford stayed with the company, joining the board of directors.
As Coke diversified its drinks range, Pepsi followed suit, acquiring soft drink Mountain Dew in 1964. More importantly, Pepsi chose to diversify the nature of its business as well. Salty snack company Frito-Lay was acquired in 1965. Pepsi president Don Kendall explained his strategy in simple terms: "Potato chips make you thirsty. Pepsi satisfies thirst." Later PepsiCo widened its interest even further, acquiring North American Van Lines (1968, sold 1984), Wilson Sporting Goods (1970, sold 1985) and other unrelated companies.
In 1967, Pepsi's market share got a huge boost from its Pepsi Generation ad campaign, which added measurably to sales. But increasingly it was in the international market that Coke and Pepsi went to war. The first broadside was fired by Pepsi, who in 1972 used a personal connection to US President Richard Nixon to become part of the historical trade delegation which reopened trade with the USSR. Later that year, Pepsi signed an exclusive 10-year deal with the Soviet Union, becoming the first US product to be sold there. In return they secured reciprocal rights to import Stolichnaya vodka to the US (until the 1980s).
Coca-Cola was quick to get close to Nixon's successor Jimmy Carter and tirelessly opened new world markets over the following years. Pepsi retaliated by switching the battleground back to the US. Pepsi Light launched in 1975. The same year, the company initiated the then-unprecedented step of actively criticizing its competitor in advertising. The Pepsi Challenge was launched in Dallas - real-life Coke-drinkers were shown in TV commercials discovering to their astonishment that they preferred Pepsi in a blind taste test. Pepsi quickly rolled the campaign out nationally, soon overtaking Coke in supermarket sales. Coke at first dismissed these "dirty tactics", but then conducted its own research and was horrified to find that even its own tests showed consumers preferred Pepsi as well. As the decade drew to a close, Coca-Cola saw its US market share begin to decline as Pepsi's grew. But if Pepsi's sales were booming in supermarkets, the challenger couldn't dent the bigger company's hold on so-called fountain sales in restaurants and bars. Following the maxim of "if you can't beat 'em, join 'em", PepsiCo acquired restaurant chain Pizza Hut in 1977, followed by Taco Bell in 1978 to ensure availability of Pepsi rather than Coke. Restaurant supply company PepsiCo Food Systems was launched in 1981 (sold 1997).
Finally in 1983 Coke set about resolving this taste test problem once and for all. The company launched what it believed would be a masterstroke, improving the taste of Coke in order to ensure it won all future blind tests. Famously, this move proved a disaster. Not only was New Coke almost unanimously rejected by consumers, but the blunder gave Pepsi the opportunity to brag how even Coca-Cola knew that Pepsi tasted better! The pretender celebrated by paying Michael Jackson, then at the peak of his popularity, $5m to appear in its new ad campaign the following year.
By 1985, PepsiCo was far bigger than Coca-Cola. Its widely diversified businesses generated sales of $7.5bn. The following year, the company got bigger still, acquiring Kentucky Fried Chicken and the 7-Up International international drinks franchise from Philip Morris. Sales pushed past $10bn. By 1990, following the acquisition of further subsidiaries including Walker's and Smith's Crisps in the UK (both 1989), revenues had grown to $15bn. By 1995, PepsiCo sales had topped $30bn, and the company employed almost half a million people globally, making it the world's third largest employer. But as PepsiCo focused its attention on fast food and snacks, the popularity of its core brand began to slide both in the US and around the globe. Coke systematically marched into international territories, overturning Pepsi's lead in one country after another. In 1996, under newly appointed CEO Roger Enrico, the company took the decision to scale down its operations by one third, selling the food distribution arm, and spinning off the three global restaurant operations as what is now Yum! Brands. The process was completed in 1997, leaving PepsiCo free to concentrate on the core business of drinks and snacks.
PepsiCo had already begun to move into non-carbonated soft drinks during the 1990s, launching Aquafina mineral water into the highly competitive US market in 1997 and signing a deal to distribute Ocean Spray cranberry juice. There was also a joint venture with Lipton to market ready-to-drink teas. The purchase of Tropicana made the company America's leading juice business.
Tropicana was founded in 1947 by Anthony Rossi as a Florida fruit packing business. In 1954, however, Rossi discovered a pasteurization process which could prolong the shelf-life of fresh orange juice. This allowed Tropicana to become the first company to market not-from-concentrate orange juice in a ready-to-serve package. Sold under the name Tropicana Pure Premium, it quickly became the company’s flagship product. Tropicana went public in 1957, was purchased by Beatrice Foods in 1978, then bought out by Kohlberg Kravis & Roberts in 1986. KKR sold the business to Seagram, who added the Dole global juice business in 1995. PepsiCo acquired Tropicana in August 1998 for $3.3bn after Seagram put it on the market in order to fund their acquisition of Polygram.
During 1998 and early 1999, PepsiCo concentrated on consolidating its bottling interests with those of leading US bottler Whitman Corporation. The two companies combined their operations as The Pepsi Bottling Group. Tough moves by Coke to close out its competitor in selected US restaurant chains inspired Pepsi to issue a lawsuit in 1998 against the Atlanta company for supposedly monopolistic business practices.
The group mounted another aggressive acquisition drive in late 2000. PepsiCo agreed to purchase a 90% stake in the South Beach Beverage Company, maker of SoBe "new age" still drinks, in November that year (for $337m). The same month, the group tussled with Coca-Cola to acquire Quaker Oats, whose brands include cereals as well as Gatorade, the best-selling US sports drink. Pepsi made Quaker an offer of $14bn, but was initially rejected. By mid-month, Coca-Cola had become the favourite to buy the company with a $15bn offer, but it too pulled out, as did Danone, another late bidder. Pepsi was invited back to the table at the end of the month, and were able to win over Quaker with a $13bn revised offer. See full profile for current activities
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