Don’t write off carbonated soft drinks just yet, says PepsiCo: Mountain Dew Kickstart worth 'almost $250m' in two years

By Elaine Watson contact

- Last updated on GMT

PepsiCo Mountain Dew Kickstart almost a $250m brand

Related tags: Soft drink

While Diet Pepsi sales remain pretty dire, strong growth from Mountain Dew Kickstart, Wild Cherry Pepsi and retro-style ‘real-sugar’ Pepsi prove that Americans haven’t lost their enthusiasm for carbonated soft drinks (CSDs), says PepsiCo.

Speaking at the Barclays Back to School conference in Boston this week, PepsiCo Americas Beverages CEO Al Carey said Mountain Dew Kickstart is “almost a $250m business after its second year in the marketplace​”, while full-sugar Wild Cherry Pepsi “is growing significantly​”.

While the latest Nielsen data suggests US retail sales of Pepsi's diet sodas (excluding energy) fell 7.5% in the 12 weeks to August 2, the performance of its full sugar CSDs was far better (+2.7%).

According to Carey: “Now here is an interesting new development in that the CSD business is stabilizing, although the diets are not and we're working on several solutions...

“In terms of the regular full sugared sodas... the flavored CSDs will grow rapidly over the next five years. Most of that is caused by Millennials liking flavors but most of [all?] the Hispanic influence on our population ....

“We have had some very good progress on Mountain Dew because of the introduction of Kickstart​ [an ‘energizing’ sparkling beverage with 5% juice, vitamins, and 92mg of caffeine in a 16oz can - sweetened with HFCS, ace K and sucralose].  On innovation, we're probably doing twice as much innovation as we did several years ago.”

What’s next? Electrolyte workout water and sparkling tea

Beyond carbonates, a new 'electrolyte water' is about to join the Gatorade-backed Propel 'workout water' range, he said. Meanwhile, sales of the new Tropicana Farmstand range are up in the “double digits​” YoY, and sales of Pure Leaf Tea are up 40% YoY.

“Our consumer research shows that sparking tea drinks with low calories and real tea credentials have got tremendous potential and that’s a product we’ll be launching in the early part of next year.”

On ready-to-drink coffee, he said, “we’re number one by long shot. ​[Starbucks branded] iced coffee has been a real good contributor to us.

 “I feel very good from a future stand point. So out of the seven fastest growing categories in beverages for the next five years, we have a very strong position in six of them.”

Propel workout waters

Re-allocating trade funds

As for pricing in the soft drinks industry, a high percentage of carbonated soft drinks are sold on promotion, but consumers aren't buying soda in the same way as they used to, he said, noting that the money pumped into trade spending on multi-packs and some other packaging formats might be better spent elsewhere.

“If you could look at the investments and the money that’s spent to drive the promoted packs, trying to match the prices of the year before and trying to overlap the promoted holiday features from the year before, it's a tremendous amount of money…

“I think we need to move the business in a direction where the consumer is going and that’s away from these promoted packs. If you just took some of that money that we invest in these promoted packs, moved it into the rest of the portfolio, we would see a significant increase ​[in sales of other products].”

sofia_vergara_diet_pepsi
According to Nielsen data cited in a recent Wells Fargo report, dollar sales of diet soda (excluding energy) fell 6.7% in the 12 weeks to August 2, 2014 in the US retail market. Regular carbonated soft drink sales were up 2.2%

Retailers ‘sometimes will not cooperate and price aggressively’

While changing the promotional dynamics of the soft drinks category is proving tough, the pricing environment overall is becoming more “rational​”, he claimed.

“We’re very much going after raising the price on the holidays for these carbonated soft drinks and lowering them for the everyday and the net [result] will be improved profitability for the retailer and [for] us.

“We’ve made some progress on that and it’s showing up in our business but I would tell you it’s a tricky one because if a retailer gets to a holiday and they feel like they need volume, they still sometimes will not cooperate and price aggressively. “

Albert Carey, CEO, PepsiCo Americas Beverages
Al Carey: “I think we need to move the business in a direction where the consumer is going and that’s away from these promoted packs."

There are only seven or eight manufacturers who are recording growth out of the top 20

Overall, he said, “It’s a pretty tough retail environment out there”, ​noting that “through the first half of the year, there are only seven or eight manufacturers who are recording growth out of the top 20”.

He added: “This gives you an idea relatively speaking of how difficult it is in the food business. It’s only growing about 1.5% to 2%. The second thing is if you stripped out the North American beverage business for PepsiCo alone, we rank third in contribution growth. So that’s a big improvement of where we were before.”

 

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