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Pepsi: Brand Profile

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Pepsi is the world's most famous #2 multi-billion dollar brand. The war between Pepsi and its arch-rival Coke has been raging for years, and the battle of the colas has been extended into other product areas as well. Parent PepsiCo established itself as top dog outside the cola market with a world-beating snacks business and a portfolio of other soft drinks that sometimes outsell or outmanoeuvre their rivals from The Coca-Cola Company. But Pepsi itself seems destined to stay in second place. But only to the rival cola. In all other respects this is still a global giant, with worldwide sales of close to $30bn. But second-place is still second-place, and like that other brand that made a virtue out of being the underdog, car rental company Avis, it means Pepsi tries harder even if it doesn't usually succeed...

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Competitors

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Brand & Analysis

The Pepsi trademark now comes in a number of different versions. The main brand is Pepsi itself of course, supported in its domestic market by Diet Pepsi and what is now Pepsi Zero Sugar. This was originally Pepsi One, later rebranded to Pepsi Max, in a slightly different formulation to the PepsiMax sold in Europe. (It initially had low calories and added caffeine, before being revamped along European lines with zero sugar). In 2011, the group claimed global retail sales of almost $21bn for the main Pepsi brand, plus another $5bn or more for Diet Pepsi and almost $1.5bn for PepsiMax.

There are more than 15 other current variants as of 2017, with availability that varies from region to region in the US. Among the longest-lived are Wild Cherry Pepsi (introduced in 1988) and Caffeine-Free Pepsi (launched in 1982) as well as various flavoured versions with added lime or vanilla. Fountain systems at restaurants, movie theatres and convenience stores also offer Pepsi Freeze slushees in various flavours. A new limited edition for summer 2017 is cinnamon-flavoured Pepsi Fire.

Numerous other variants have come and gone. During 2002, Pepsi introduced berry-flavoured Pepsi Blue in an attempt to counter Coke's successful but short-lived vanilla variant, but this was later phased out. In early 2003 the company launched its own vanilla version, but this also subsequently faded. In summer 2004 the brand launched Pepsi Edge, a mid-calorie variant containing a blend of sweeteners and corn fructose, pitched between Pepsi and Diet Pepsi. Coke rushed out its own equivalent mid-cal variant under the name C2. Both companies were attempting to target men who normally avoid low-cal colas because of their dieting image and artificial after-taste. However sales of both brands' mid-cal variants were disappointing, and Pepsi Edge was discontinued the following year.

Another attempt to conquer the mid-calorie market was Pepsi Next, launched in 2012. It has around 60% less sugar than regular Pepsi, but claims to have more taste that either the company's previous attempts at midcals or no-cal Max. It was accompanied by Pepsi True, sweetened with natural stevia extract, launched in 3Q 2014 against Coke's Coca-Cola Life. It is still available in limited supply. Reacting to a growing consumer backlash against standard synthesised sweetener aspartame, the group took the decision in Spring 2015 to drop that additive from Diet Pepsi in place of a combination of sucralose and acesulfame potassium. However, customers didn't like the taste of the new formula, and aspartame was reintroduced in 2016.

In 2005, Pepsi began testing a new variant of its international PepsiMax brand in France: Pepsi Max Cappuccino. The most unusual new variants launch in summer 2006 in the US under the Pepsi Jazz banner, offering zero calorie colas flavoured with black cherry & vanilla, or strawberries & cream. In 2007, Pepsi Max launched in the US, offering a higher level of caffeine than traditional Diet Pepsi, as well as ginseng. Pepsi Raw was a new premium variant, launched in selected bar and club markets in 2008, made with natural plant extracts and raw cane sugar. However, consumer reaction was muted and the variant was withdrawn in several global markets including the UK in 2010. Pepsi X Cola was a short-lived tie-in with The X Factor TV show, in dragonfruit flavour, launched in 2012. Another change in 2008 was a complete overhaul of the Pepsi family's logos, in which the familiar white swirl in the middle of the red/blue circle was tweaked to appear more like a smile (for Pepsi) and a grin (for Pepsi Max).

This was followed by the introduction of Pepsi Throwback, another set of limited edition variants, containing "real sugar" and packaged in old-style cans and bottles, with the accompanying old branding. Another throwback variant is Crystal Pepsi, with the same flavour as the mainstream drink but completely clear. Originally introduced in the 1990s and later discontinued, it was relaunched in 2015.

Everyone knows that Coca-Cola sells more than Pepsi. More recently, however, in a generally falling US market, the gap has widened slightly not narrowed. According to Beverage Digest research for 2009, Pepsi-Cola had 9.9% share of the all-channel retail CSD market by volume, compared to regular Coke's 17.0%. Since then, though, Pepsi's share has steadily weakened, while Coke's has held or even slightly increased. In 2010, for example, the Pepsi family suffered the biggest fall of any of the top ten brands. As a result, Pepsi and Diet Pepsi gave up their long-established #2 and #6 positions in the overall market, falling to #3 and #7 respectively. That weakness has remained, but the contagion has also spread to other brands, notably rival Diet Coke. With its own volumes falling faster than those of Pepsi, it handed back the #2 spot in 2014. For that year, Beverage Digest estimated total volumes of 1.34bn cases for the whole Pepsi family, down 2.9% year-on-year. That figure included including 774m cases for regular Pepsi (8.8% carbonated share), 378m for Diet Pepsi (4.3% share) and 188m for all other variants. More recent figures aren't publicly available, but Beverage Digest reported a 9% decline in volumes of Diet Pepsi in 2016 (compared to a 4% decline for Diet Coke); and a near-3% decline for regular Pepsi (against a 0.1% decline for regular Coke).

Pepsi's particular weakness in the US is in the influential fountain market - sales through restaurants, bars and hotels. Pepsi trails Coke in this market. The bed-rock of this sector is provided by fast-food outlets, and Coke has distribution in 8 out of the top 10 US fast-food chains, giving it an unmatchable 70% share to Pepsi's 20%. McDonald's, Burger King and Domino's Pizza all serve Coca-Cola products exclusively; Dairy Queen, 7-Eleven and Wendy's sit on the fence, serving both brands according to request. However in a major blow to Pepsi's ambitions, Subway agreed in 2004 to choose Coke as its main worldwide cola supplier, largely as a result of generous discounting from the #1 brand. The same year, rival sandwich chain Quizno's swapped brands, ending a 23-year relationship with Coke. Until then, only Pizza Hut, KFC and Taco Bell, the three restaurant chains formerly owned by PepsiCo, served the #2 brand exclusively.

In fact the lingering after-effects of that bond are precisely the problem for Pepsi. Although those three chains were spun off by PepsiCo in 1996 as Tricon (now Yum! Brands), Coca-Cola had already waged a long, relentless and effective campaign advising other restaurant chains not to buy syrup from the company that was also one of their biggest fast-food rivals. Even after the spin-off, some of that bias has stuck. Pepsi failed to win back Burger King in 1998, and was unable to persuade Wendy's into an exclusive contract (although in both cases, through effective competition, it forced Coke to spend significantly more to win the contract). Coca-Cola's edge in the fountain sector widens its lead in the US to around 29% overall share for Brand Coke to 19% for Brand Pepsi.

Pepsi's position is even weaker in the international market. It wasn't always this way. Pepsi was the first cola to jump aggressively into the developing world market in the 1970s, starting with 10 years of exclusive distribution in Russia. It had built up a commanding position in several countries by the 1980s. But Pepsi's eagerness to get one up on its US rival led to a number of poor decisions. In many cases, the company forged unprofitable liaisons with unsuitable partners, handing over too much control to unreliable bottlers or licensees. As a result, advertising and even branding varied enormously from one country to another, and so did quality. In some cases, the company found its local partner selling cans of Pepsi which had already been sitting in a warehouse for years.

As a result, when Coke turned its attention to the international market in the 1980s, throwing substantial investment and management resource behind a systematic brand-based rollout, it was able to overturn Pepsi's lead in one territory after another. For example, in 1981 Coke paid $30m for a 30% stake in a Philippine bottler and quickly reversed what had been until then a 2-to-1 Pepsi advantage in that country. Despite Pepsi's headstart in Russia, Coke claimed a similar margin of victory in that territory by 1999. Pepsi seized 30% of the Indian market when it launched there in 1990. It took three years for Coke to arrive, but the newcomer had built up a 56% share by the end of the decade, largely at Pepsi's expense. One of the most crushing blows to Pepsi's pride occurred in Venezuela. With Coke previously absent from that market, Pepsi's local bottling partner was delivering an overwhelming 85% share. In 1998, Coke was able to persuade the bottler to switch allegiance, dumping Pepsi virtually overnight and selling Coca-Cola instead.

The biggest challenge facing Pepsi has always been image. Coca-Cola's massive international success has been generated almost exclusively by the power of its brand. Coke's brand message clearly signifies refreshment, confidence, happiness, success, ultimate taste. Pepsi might arguably taste better with a blindfold on, but the perceived power of Coke's brand beats most consumers' tastebuds. When consumers buy Coke they are buying America; when consumers buy Pepsi they are buying second-best. PepsiCo finally began to address these branding problems in the late 1990s. Project Blue, launched in 1998, was conceived as a global rebranding project, rebadging the product worldwide and establishing its dominant colour as blue, in contrast to Coke's red. Even the Mir space station and Concorde assisted in the exercise, adopting Pepsi's blue banner in promotional tie-ups.

The company has also thrown itself aggressively into the marketing arena, realigning with a youth audience in contrast to the more wholesome family values espoused by Coca-Cola. Pepsi launched a confident new marketing slogan in late 2003: "Pepsi. It's the Cola". Coke is your mum and dad, but Pepsi is youth, excitement, sports, money, music, the choice of a new generation. In 1999, the company signed a $2bn six-year tie-in with the Star Wars movie series, commencing with the release of Phantom Menace. It has formed links with numerous other youth-oriented blockbusters since then, for example with summer 2006 release Superman Returns.

In 2002 the brand scored a major victory against its arch-rival, sealing a five-year deal to become the official drink of the National Football League (for around $200m). It has renewed that arrangement several times, most recently in 2011 with a new ten-year deal which expands the sponsorship to other PepsiCo brands. That includes sponsorship of the annual half-time show at the Super Bowl, the most watched event in the annual TV calendar. It secured a similar arrangement with the National Basketball Association in 2015, a five-year deal covering the complete brand portfolio. There is also a partnership with the NHL, though a similar arrangement with MLB came to an end in 2017 (and was assumed by Coca-Cola instead). Pepsi also has strong links global soccer, with a longstanding marketing relationship with former England superstar David Beckham as well as Argentina's Lionel Messi. This partnership has been extended to cover a number of other football stars, mainly to tie in with the Fifa World Cup Tournament every four years. Perhaps more unusual was a relationship with the biggest sport in India - cricket. In 2012 it secured title sponsorship of the Indian Premier League - later the Pepsi IPL - for five years for around $720m. However, PepsiCo quit that partnership two years ahead of schedule in 2015 following multiple allegations of match-fixing and insider betting among the league's eight teams.

Pepsi also has a long history of integrating music as a core platform in its marketing. It launched that approach in the 1960s, positioning Pepsi as the drink of the "Young Generation". In the 1970s, Johnny Cash, BB King and Tammy Wynette were among the stars recuited to sing its 'You've Got A Lot To Live' jingle. That process accelerated over the next two decades with arrangements with music celebrities from Michael Jackson, Madonna and the Spice Girls in the 1980s and 1990s to more recent deals with Britney Spears (rumoured at the time to have broken records for dollar value), Shakira and Beyonce. The brand sponsors many music chart promotions around the world, and in 2003, Pepsi presented Pepsi Smash, a music TV show on the American WB network. The brand banner has maintained to cover other music-related promotions. In 2004, the brand teamed up with Apple to sponsor the giveaway of 100m free songs via Apple's iTunes music download service.

More recently, Pepsi Smash was the umbrella for a partnership with Yahoo! Music offering downloads and music ringtones for use on Motorola handsets. Another aggressive promotion in 2003 was built around a televised "Play For A Billion" sweepstakes, offering million-dollar prizes to contestants throughout the summer, and culminating in the chance to win $1bn. One of its biggest recent music-related investments was a partnership deal with the X Factor TV series in the US (matching Coca-Cola's relationship with American Idol). In 2011, Pepsi signed Sofia Vergara, one of the stars of TV sitcom Modern Family, to appear in a series of ads for Diet Pepsi, continuing a relationship that began when she was 17 and launched her career as a model by appearing in a Pepsi ad in her home country of Colombia. In 2012, the brand renewed its arrangement with Beyonce, who appeared in its advertising during 2013.

The group resurrected the Pepsi Challenge concept in 2015, but in a much bigger style than the old taste tests against Coke. The brand signed up a squad of celebrities including tennis champion Serena Williams, athlete Usain Bolt and Diesel designer Nicola Formichetti to issue a different sporting or technological or musical challenge each month.

The other major initiative mounted in the 1990s was a restructuring of Pepsi's international operations, to reduce its exposure to weaker markets. The group wrote off over $800m in poor international investments, and focused its attention on those countries where Pepsi was the clear #1 or #2, leaving more carefully controlled local partners to manage the remaining markets. In India, one of those core markets, Pepsi has gradually fought back, painstakingly forging a network of local partnerships. As a result, Coke's share had slipped back from 56% to 52% by 2001, while Pepsi's had grown to 47%.

In the UK, where Pepsi is produced under license by Britvic Soft Drinks, the brand trails some way behind Coke in the retail (or "take-home") market, with combined sales estimated at £485m in 2016 (ye Feb 2017, IRI, The Grocer). That's less than half the size of Coke, and equivalent to 16% of the carbonated soft drinks sector (Coke has 47%). However, volume sales rose more 6% year-on-year, compared to 3% decline for its arch-rival. The key contributor to that lift has been Pepsi Max, which now contributes more than half of total sales. Pepsi Max accounted for sales of £272m, compared to £128m for regular Pepsi and £83m for Diet Pepsi and other low-cal variants. Pepsi Max was the #3 branded carbonate behind Coke and Diet Coke respectively, while regular Pepsi was #4. Pepsi also does much better in the UK through the on-trade (ie restaurants, bars, pubs etc), overtaking Coke for the first time in 2009. It has retained that lead. Other local licensees include Suntory in Japan and AmBev in Brazil.

Background

See PepsiCo Company Profile for history.

Last full revision 14th June 2017


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