New ad model boosts PepsiCo

27 July 2012

NEW YORK: PepsiCo, the food and beverage group, has achieved "greater coordination" in its global advertising creative and production activities, yielding cost benefits and more consistent messaging.

In a bid to rejuvenate flagging performance levels, the firm is currently focusing on five strategic areas, including technical issues like execution, productivity and enhancing cash returns, as well as innovation and brand building.

While discussing the last of these matters, Indra Nooyi, PepsiCo's CEO, stated it was "on target" to spend 5.7% of revenues on ads and marketing (A&M) this year, an uptick from 5.2% in 2011.

"We've made good progress on increasing our consumer-facing A&M investment," she told analysts on a conference call. "And we've significantly stepped up our media in key markets."

"Much of this is enabled by having much greater coordination among our operations globally, allowing us to leverage creative and production activities across multiple geographies, which gives us cost leverage and drives greater consistency in our brand messaging," said Nooyi.

In dollar terms, the organisation anticipates boosting its outgoings here by between $500m and $600m, with the rate of expansion set to rise more sharply in the second half of the year than the first.

As an example, expenditure figures in the US have grown by over 40% in the most recent quarter and 30% in the year to date. Nooyi suggested that heightened efficiency, not just additional funding, was playing a key role here.

To "drive greater scale and impact", resources are being concentrated behind 12 of the company's "global mega brands", she added. This list contains offerings such as Pepsi, Quaker, Doritos, Tropicana, Gatorade and Lay's.

"We're beginning to gain traction with these efforts. Brand equity scores for our major brands in our key markets are showing improvement in many cases and are stabilising in the remainder," said Nooyi.

In evidence of this, 85% of brand equity ratings were either stable or improved in core strategic markets during the last three months, up from 81% quarter on quarter, with Lay's and Gatorade delivering especially impressive returns

"We will sustain our efforts in this area, and we are confident we will see higher brand equity scores translate into strong top line growth with healthy price premiums," said Nooyi.

Further advertising support can also be expected to back new products in three main segments: "fun-for-you", "better-for-you" and "good-for-you". Overall, PepsiCo's spend on R&D is pegged to reach 7% of sales this year.

Data sourced from Seeking Alpha; additional content by Warc staff