Industry sources reveal that PepsiCo is undergoing a business review that will end with marketing budgets increasing up to 20% for their core beverages: carbonated soft drinks (source article here). The article further details that the reason of the CSD re-focus is a direct result of shareholders wanting PepsiCo to split up its food and beverage offerings – similar to how Kraft separated their food and confectionery business. By increasing their marketing budgets for the core beverage offerings, PepsiCo is reported to be cutting employees to balance out the spending. If PepsiCo were to split up its food and beverage business, would it really be better for the company? As the focus of my blog is beverages, would splitting up be beneficial for the company’s beverage unit? Will more marketing funds to help promote their beverages work to revive their soda business? How should these marketing funds be used to reinvigorate the refreshments portfolio, particularly carbonated soft drinks?
Although the split may be better for the company as a whole and for the snacks portfolio, this split would not really help the beverage unit. It may make business sense to separate the two units since it would allow the snack unit to realize its full value, but it would ultimately depreciate the beverage unit’s total value. The beverage unit is underperforming at the moment, after losing the second place soda position to Diet Coke, while general health trends have most consumers choosing waters, teas and juices over soft drinks. However, a split to separate the beverage division does not help their CSDs’ revival. PepsiCo strongly believes in “Power of One”, which translate value to both divisions by providing a total snacking solution. Separating the two companies will not allow them to realize full benefit of their unique market position – a hand in both food and drinks. When a shopper reaches for a soft drink, they also likely reach for some chips or granola bars as well – both products that PepsiCo offers. Other companies like Coca-Cola and Dr Pepper would need look outside their own companies to find a willing partner to co-promote. Keeping the two distinct divisions in one company provides a stronger support system and more opportunities to revive the underperforming beverage business.
With regard to the second part of the post, more marketing support certainly helps with the soft drinks department’s revival. Relating to execution, Pepsi may be advertised more frequently and more ubiquitously, exploring other areas to prominently feature their products in addition to TV, online and mobile devices. The additional funding may also be used to support trade activity to make it an even more convincing option for shoppers in the beverage and snack aisles to pick Pepsi over Coca-Cola. So many more opportunities when people say, “If only I had more money, or had a bigger budget!” that were previously limited can now be explored. While larger marketing budgets may also mean more market research to understand consumers, it’s very likely that some of the dollars will translate to what consumers can see at the end of day. Keep an eye out for more soft drink advertisements following their Superbowl spots. Pepsi may have previously been constrained to display more ads following a large campaign, but now they may be able to consistently advertise their products everywhere.