Special Report – Can Santa bring Pepsi early Christmas?

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PepsiCo, the food and beverage giant, recently launched their new advertising campaign for their Pepsi-Cola after a hiatus of three years.

This came in light of the drop in sales last year. U.S. sales of Pepsi-Cola and Diet Pepsi fell 4.8% and 5.2% in 2010, according to Beverage Digest, a trade publication and data service.

PepsiCo, which had always allotted a significant budget for advertising expenditure specifically for its highly competitive flagship brand Pepsi-Cola, had been cutting down this expense for the past 2 years.

According to Kantar Media, a unit of?WPP?that tracks ad spending, PepsiCo spent $41.6 million to advertise Pepsi in the United States during the first nine months of 2009, down 41 percent from the $70.5 million spent in the same period of 2008. Last year, PepsiCo cut ad spending behind the Pepsi brand in all media nearly in half to $20.1 million, according to the unit.

Pepsi also skipped soda ads on the 2010 Super Bowl for the first time in 24 years, putting the millions of dollars it might have spent on those ads toward a $20 million online charity competition called the Refresh Project. The Refresh Project garnered 80 million online votes for charitable projects, but also ended up dominated by alliances and did little to sell sodas.

Also, there was the recent logo re-designing expense, and consequently no attention was paid to marketing Pepsi-Cola the way it was always done.

Now, they were beginning to see the result of their concentration on the promotion of a diversified portfolio of products, and setting sights away from Pepsi-Cola, showing in numbers, which served as a rude wake up call.

This year, PepsiCo raised its advertising expenditure on beverages by 30%, with a renewed focus on cola. The new attention to beverages is paying some dividends.

This makes us wonder why the company bit the hand that fed. It all lies at the top.

Shift in focus

 

When industry market share numbers came out in March, showing Pepsi-Cola slipped to No. 3, trailing after Coke and Diet Coke, analysts accused PepsiCo?and Chairman and Chief Executive Indra Nooyi?of taking their eyes off the company’s biggest brand.

Emphasizing fruit juice, oatmeal and Gatorade, she has set an ambitious goal of more than doubling revenue of nutritious products to $30 billion by 2020 while cultivating a corporate image tuned in to health and global social responsibility.

In an interview, Mrs. Nooyi acknowledged that she may have spent a disproportionate amount of time talking about healthier products, but said it’s part of a “deliberate strategy” to diversify the portfolio. Consumers increasingly want healthier foods and beverages, she said, and PepsiCo has to satisfy critics about health concerns.

In late 2008, Mrs. Nooyi turned her attention to North American beverages and a costly overhaul of all brands, as she said they were looking “tired on the shelf.”

Under the direction of her lieutenant, Massimo d’Amore, now the company’s global beverage chief, PepsiCo launched new campaigns and graphics for all the big beverage brands and new packaging for more than 1,200 individual products, an unusually ambitious redesign.

However, because of the renewed marketing campaign, there has been a slight surge in figures for the first quarter of 2011.

In the company’s Earnings Conference Call for the first quarter of 2011, PepsiCo Chairman and CEO, Indra Nooyi, marked on the “top line growth being balanced and strong, and profitability being right on plan.” She added, “Growth was well balanced, with strength in both developed and emerging markets.”

She also mentioned that the core division operating profit grew 5%, due to “solid volume and net revenue performance and synergies and despite inflationary pressures and continued investment spending.”

New ad strategy

Now the company has decided to take things more seriously, thus the new Santa ad.

The new Santa campaign takes a clear swipe at rival Coke. “Its right for Pepsi to play with this inside joke that in summer time everybody drinks Pepsi, even the most iconic Coke celebrity, which is Santa,” said Massimo d’Amore, CEO-PepsiCo Beverages America.

“Hyper-competition is always good to sell more soda. Consumers love the cola wars. Since we launched the Max campaign, Max is growing triple digits and Coke Zero is still growing, so everybody wins when we get into the cola wars,” as reported by Advertising Age.

This 30-second commercial started airing last week, showing a happy Santa partying with Mrs. Claus and the elves at the beach, and going up to the bar for a drink, he declines the bartender’s offer for a Coke, asking for a Pepsi instead. The tagline is, ?Summer Time is Pepsi Time.?

An?article?in the Wall Street Journal suggested that the campaign was behind schedule, quoting impatient bottlers and saying Pepsi was ?still racing? to make it ready.

The AMEA reach

PepsiCo offers the world’s largest portfolio of billion-dollar food and beverage brands, including 19 different product lines that generate more than $1 billion in annual retail sales each.

The Asia Middle East Africa (AMEA) division, headed by Mr.Saad Abdul-Latif covers a territory that spans more than 100+ countries and is home to more than half of the world’s population. Dubai is the home of the AMEA headquarters.

This new marketing campaign was launched mainly due to the drop in sales in the North America, targeted at that particular division due to the US decline in Pepsi-Cola sales.

In the AMEA division, this is not likely to be prominently affected. Within these countries, a marketing strategy would require a more local approach.

In this region, PepsiCo has launched various marketing campaigns over the years, like the musical feature film Bahr Al Nujoom (Sea of Stars) in 2008, which featured the voices of celebrities Haifa Wehbe, Wael Kfouri, Carole Samaha, Ahmad Al Cherif and Ruweida Al Mahrouqi, partnerships with the Hilton and Conrad hotels in Egypt, Jordan and Lebanon, and the launch of new beverages in the AMEA countries.

Middle East markets are less saturated than those in Europe and the United States when it comes to nonalcoholic drinks, offering greater room for growth, according to representatives of Pepsi. They have focused their marketing on young people through association with the region’s pop stars, to reach young Arabs.

In 2008, Pepsi opted for ad campaigns mixing local and global celebrities. It cast French soccer star Thierry Henry with Haifa Wehbe and Christina Aguilera with another Lebanese singer, Elissa.

Pepsi has launched various ad campaigns in this region over the years, and they work well with individuals here, especially youngsters, if they see their own stars on screen. There is a possibility the Santa ad would not see many buyers here.

Dubai Refreshment Company (DRC)

The Dubai Refreshment Company, the sole franchisee and distributor of PepsiCo products in Dubai and Northern Emirates, said it will be setting up its new state-of-the-art bottling factory and warehouse facility at Dubai Investment Park (DIP).

This will be one of the biggest beverage facilities in the Mena region, and will raise the company?s capacity utilization levels. Spanning over 140,000 square meters, the plant will accommodate 10 production lines, with a capacity to produce over 120 million cases annually.

Besides integrating the latest technology in automated processing and production lines, the new bottling line is expected to buttress the volume recovery and increase production, not only in the UAE but the entire region.

The construction and start of the entire operation, is expected to be finalized in the third quarter of 2012. Once completed, the project will also accommodate management and operational offices, staff and recreational facilities, distribution vehicles compound and storage complex.

Saad Abdul-Latif, the CEO of PepsiCo Asia, Middle East and Africa, said the mega plant is an important development for DRC and for PepsiCo which will help them meet the growing demand for their respective products.

?PepsiCo fully supports DRC?s vision to modernize and expand its infrastructure as we believe that these efforts will help transform the company into one of the leading PepsiCo bottlers in the world, through our partnership, making our 50-year-old relationship even stronger,? he said.

Strong demand in Mid East

Prompted by a recent surge of prosperity in the Middle East, PepsiCo and its rival Coca-Cola Co. have engaged in a fierce race to win the soft-drink allegiance of Arabs, especially youth.

In the last few years, both the companies have recorded more than 10% growth in their annual sales in the region, and executives from both companies say future prospects look promising.

Though the two soda giants have been global rivals for decades, the Arab world until recently was almost exclusively Pepsi territory.

For almost 25 years, Coca-Cola was boycotted in many Arab countries over its alleged support for Israel. It started selling again in the Middle East in 1990 and has built its market share to about 35%, according to Ahmed Rady, the company’s Bahrain-based Middle East marketing manager.

PepsiCo?s weak US numbers from its snacks and beverage business was offset by demand in the Middle East and emerging markets, according to the numbers.

?Growth in emerging markets was strong, driving attractive gains in Eastern Europe, Asia and the Middle East,? said Indra Nooyi, PepsiCo?s chief executive.

The demand for PepsiCo beverages in its AMEA division is unwaveringly strong and any new marketing campaign in these countries would only boost sales.

Sources: pepsico, pepsidrc, ameinfo, hoteliermiddleeast, gulfnews, gulftoday, WSJ, latimes,gulftoday

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