Flagging sales of its soft drinks have prompted PepsiCo (
) to introduce a new sweetener mix to its 'Diet Pepsi' line of
products. The company has been steadily losing market share in
North America to competitors such as Coca-Cola Co (
) and Dr Pepper Snapple (
). PepsiCo is hoping that its latest attempt at reinvigorating its
flagship drink will arrest this long-standing trend.
See full analysis for PepsiCo
Market Away From Home
In recent years, PepsiCo has maintained a strong focus on
improving sales in emerging markets, especially through its
packaged snacks division. This strategy has paid off well for the
company and the revenues for PepsiCo from emerging markets has
grown from around $8 billion in 2006 to around $22 billion in 2011,
fueling a bulk of the company's growth during the period. But this
growth has come at a cost to the company's beverage sales in its
home market, North America. The company in 2011 witnessed a decline
in its market share in Carbonated Soft Drinks (CSDs) in the U.S.
for the fourth consecutive year.
Moreover, in developed economies seem to be moving away
from sugary soft drinks due to rising health consciousness. In the
face of such challenges, cola companies are turning to what they
have become famous for over the years - flooding the consumer with
advertising while fiddling with the way drinks taste to
improve their appeal.
More Ads, More Taste
PepsiCo raised its ad spend by around $600 million in 2011.
Celebrities like Beyonce and Nicki Minaj were used in ad
campaigns to promote its flagship drinks. The company also signed a
deal with the U.S. National Football League (NFL) to sponsor
the Super Bowl halftime show. Such publicity measures have proved
somewhat successful with the company reporting a small gain in
market share in the third quarter of 2012, despite a 2% decline in
overall volume sales of CSDs.
Maintaining this momentum, the company is now introducing a new
combination of artificial sweeteners for Diet Pepsi in an attempt
to refresh the old. While the drink traditionally used aspartame as
the exclusive sweetener, Pepsi is now adding acesulfame
potassium to the mix. The company claims that while this will have
no significant impact on the product's overall taste, it will help
it in retaining its flavor for a longer period. The roll out of
this new mixture has already begun in New York, Omaha,
Nebraska, and the San Francisco Bay Area.
Diet Pepsi contributed around $5 billion in revenues in 2011.
The drink's market share has been on the decline for the last
ten years as it lost out to Diet Coke, its key competitor in
the zero-calorie segment. Whether the company's attempts at
reviving its sales in the North American market delivers a big
enough impact remains to be seen, considering the increasing
competition from Coca-Cola threatening its market share globally
and Dr Pepper Snapple eating away at the domestic market.
However, if the company's attempts at reviving sales are
relatively successful and Pepsi is able to maintain its market
share in the global arena, we expect an upside of 15% for the
company's stocks. Going forward, we remain bearish about the
company's prospects in the CSD market.
We have a price estimate of $79 for PepsiCo
, which is about 10% higher than the current market price.
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