PepsiCo Changing the Lineup
Mary is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Pepsico (NYSE: PEP) recently announced that it will be pulling its low-calorie “G Series Fit” line of Gatorade products from shelves after they failed to catch on with hardcore fitness buffs and athletes. The line, which launched in April, included a pre-workout protein bar, protein drink, and low-calorie version of the sports drink. The company hopes to redesign the products and packaging in 2013, hoping to have the line back on the shelves in 2014. The line was pricey and did not perform to the company’s expectations.
In addition to revamping this line, Pepsico is planning to spend at least $600 million more on advertising this year, primarily on its top dozen brands, including Gatorade. A key focus of the advertising plan is to improve PepsiCo’s soda business, which has trailed rival Coca-Cola (NYSE: KO) in recent years. Even so, PepsiCo has been making some headway in this rivalry. A Goldman Sachs analyst recently downgraded Coca-Cola to neutral from buy. Analyst Judy Hong cited factors such as slowing growth and increased pressure from competitors such as PepsiCo at home and abroad. She expects the company’s stock to “pause in the near term” after continually outperforming its peers.
Hong hinted that PepsiCo’s recent alliance with Tingyi to distribute its drinks could intensify competition. In March, PepsiCo entered into a venture with the Chinese food and beverage maker. China is projected to become the world’s largest beverage market by 2015. As part of the alliance, Tingyi’s beverage subsidiary, TAB, is now PepsiCo’s franchise bottler in China. In addition, the companies will begin co-branding their juice drinks using the Tropicana brand name. This alliance will give PepsiCo an advantage in China. This will make it even more difficult for competitors such as Coca-Cola that might be looking to expand there.
PepsiCo is making great strides in reacting to changing market conditions in an effort to maximize growth and profitability. Adapting to customer demands, or lack thereof, is a valuable characteristic for any corporation. The removal of Gatorade’s G Series Fit line is a wise choice by PepsiCo as the products just were not growing in popularity as they had hoped. That money is better spent elsewhere, especially in expansion. The alliance with Tingyi provides a great opportunity to move into a market and tap market share ahead of rival Coca-Cola. If Coca-Cola does not hurry to catch up they could lose out. PepsiCo is currently in an optimal position and we should see great things in the coming quarters.
MaryPosey has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company and PepsiCo. Motley Fool newsletter services recommend PepsiCo and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
