PepsiCo leans on new flavors, double-digit marketing to enhance consumers’ value perception, justify price increases
“In a year filled with elevated geopolitical tensions, high inflation and significant macroeconomic volatility, PepsiCo delivered more than 14% organic revenue growth and 11% core constant currency earnings per share growth in 2022,” which is a testament to the company’s “unwavering commitment” to “fortifying our business” in part through innovation and marketing that underscores the convenience, variety and “great value proposition to the consumer” of the company’s brands and products, executives said yesterday ahead of the company’s fourth quarter earnings call.
For example, in North America, the Frito-Lay business delivered 18% organic revenue growth for the fourth quarter and 17% organic revenue growth for the fully year, while also scooping up additional market share across savory snack categories, where many of its large brands delivered double-digit net revenue growth in Q4, including Doritos, Cheetos, Lay’s, Ruffles and others.
“The breadth of Frito-Lay’s growth was also been aided by our investments in consumer-centric innovation around packaging offerings, bold flavor combinations and new texture profiles,” CEO Ramon Laguarta and CFO Hugh Johnston said in a prepared statement.
Examples include the recently launched bite-sized Frito-Lay Minis packaged in easy-to-pour canisters, expanded Doritos’ flavors, including the mashup Flamin’ Hot Cool Ranch and Tangy Tamarind, new flavors of Lay’s Kettle Cooked chips, including Fritos Chili Cheese and Lay’s Wavy Funyuns Onion as part of the Lay’s Flavor Swap lineup.
PepsiCo also launched new flavors of SunChips, including Black Bean Spicy Jalapeno and Southwestern Queso and PopCorners Cinnamon Crunch.
Beyond new flavors, the company is exploring new ingredients that can expand its appeal to a broader consumer base.
“Off the Eaten Path is a great example,” said Laguarta. “You have multigrain, then you have smaller substrates. One substrate that we like a lot is chickpea. Chickpea has high nutritional values.”
By expanding beyond the more traditional substrates, Laguarta said, “our brands can expand into other spaces, especially some of those smaller brands, but also we’re thinking about some of our bigger brands as well.”
Pepsi Zero Sugar volume up 26% in Q4
On the beverage side of the business, new zero sugar offerings and a double-digit increase in advertising and marketing helped increase organic revenue 11% in 2022 and boost operating profit 23% in the fourth quarter.
“Zero is clearly a segment of the beverage category that is growing much faster than full sugar all over the world. And Pepsi Zero has – or Pepsi Max as we call it some markets – has been a very strategic product for us in Europe and in other parts of the world,” Laguarta said.
He added Pepsi Zero Sugar, which grew volume 26% in the fourth quarter, will be at the center of the brand’s US strategy as it continues to grow and as advances in research and development allow the brand to ask consumers to pivot to zero sugar versions with zero sacrifice.
The company is reinforcing this message through a significant advertising investment during and around the Super Bowl, as well as the rest of the year, Laguarta added.
Increased marketing offers ‘outsized’ impact
To ensure the success of these and other new products, as well as classic offerings, PepsiCo will increase its advertising and marketing spend in the strong double-digits – building on increases in 2022.
This translates to more in-store displays, including coolers on the beverage side and display racks and other point-of-sale marketing on the snack side, which are “value producing investments for both the customer and us,” said Johnson.
He added: “All of those things are really outsized contributors to growth that, frankly, we’ve created a tone of win-win solutions with our customers, and it is part of what makes them continue to vote for us as the number one supplier.”