If at first you don't succeed... Could it be 3rd time lucky for PepsiCo in mid-cal beverage market?
Speaking at the Barclays Back to School Consumer conference in Boston yesterday, PepsiCo chief financial officer Hugh Johnston said anecdotal feedback in test markets in Iowa and Wisconsin had been positive for Pepsi Next.
The drink, which contains 60% fewer calories than regular Pepsi (60 cals in a 12oz can), follows two abortive attempts by Pepsi to appeal to customers that like the taste of full sugar colas but want to cut calories: Pepsi XL, which failed to inspire in the mid 1990s, and Pepsi Edge, which was launched in 2004 but axed a year later.
‘We need to break this paradigm’
“Historically, consumers have had to choose between zero calorie and full calorie soft drinks”, said Johnston, who did not refer to prior iterations of Pepsi Next in his presentation. “Some have been unwilling to compromise on taste and as a result, left the category completely. We need to break this paradigm.”
He added: “That’s why we are investing behind the discovery of new sweeteners that will spark new interest in this category. Pepsi Next is just our first step in this journey.
“It is currently in two tests markets. Although it is early days, anecdotal feedback has been very favorable which we are optimistic will play out in statistically strong support we expect once the test is completed.”
Datamonitor: Do we really need mid-calorie drinks?
While PepsiCo clearly believes there is money to be made in mid-calorie beverages, many market watchers remain skeptical, however.
Speaking to FoodNavigator-USA at the SupplySide East trade show in May when reports of PepsiCo's third attempt to get lucky in mid-calorie beverages first emerged, Datamonitor product launch analytics director Tom Vierhile said: “They keep trying it, so they must be convinced there is a market for it, but I am just not sure that the need is there.
“There have been such improvements in sweeteners and flavor technology in recent years that you can create zero calorie beverages now that taste just as good.”
Trop50: ‘Incredible momentum’
However, PepsiCo was able to provide compelling evidence to prove that reduced calorie fruit drinks were a hit with consumers, citing the success of Trop50, which contains juice, water and the natural sweetener stevia.
Said Johnston: “Our innovation strategy for Tropicana is working. Take Trop50... It solves a real problem by giving consumers natural goodness and the great taste of fruit juice with half the calories. Trop50 created a completely new juice platform and it has incredible momentum.
“As of the end of Q2 it has generated $150m+ in sales over the last 12 months - up 50%."
‘Locked in a stagflationary environment’
However, the North American market remained challenging as high inflation coupled with weak demand and "stressed consumers" created 'stagflation', he said.
"It’s now clear that developed markets have little growth. In fact, we very much seem to be locked into a stagflationary environment… The stagflationary environment and a stressed consumer have created difficulties for the entire consumer packaged goods space. This stagflation has made pricing a tricky balancing act.”
Johnston, who said he did “not anticipate the need for large scale acquisitions in the future” was nevertheless upbeat about the firm’s prospects across all platforms: snacks, beverages and nutrition, with the latter accounting for 21% of revenues in 2010 compared with just 11% in 2000.
Meanwhile, emerging markets now accounted for more than 30% of global revenues and had grown by almost 25% over the past five years, added PepsiCo America Foods chief executive John Compton.
“As consumers move into more urban markets they are demanding the safety of pre-packaged food…And we think we are uniquely positioned to take advantage of that.”
In the US, per capita consumption of snacks was about 8.5 kilos per person compared with just 0.5kg in Asia Pacific, 1.4kg in Eastern Europe and 1.5kg in Latin America, highlighting a significant opportunity to increase consumption in emerging markets, he said.
