PepsiCo and Coca-Cola both released earnings statements in February that showed Coca-Cola to be leading its competitor. PepsiCo spent $100 million less than Coca-Cola on soda advertising last year, at $153 million, and both brands have reduced overall ad spend in recent years. Although this year is predicted to see historically high commodities prices — affecting both brands’ bottom line — each is committing a significant amount of cost-cutting to an increase in marketing spend in 2012.
Roland Li, International Business Times
On the strength of a 3% increase in overall beverage sales, Coca-Cola beat forecasts by analysts polled by Factset, who expected earnings of 77 cents per share. Coca-Cola brand global volume rose by 3% globally, led by growth in Asia, with 33% growth in Thailand, 15% in India and 13% in China. Sales of its non-carbonated drinks, including teas, juices and energy beverages, increased by 6%. The company said it is seeking to save $550 million to $650 million by 2015 through a cost-cutting program that will include streamlining its technology systems, standardizing business processes and making its global supply chain more efficient. The savings from the program will be reinvested into marketing and used to offset increases in costs for commodities such as corn syrup, juices and packaging.
Paul Ziobro, The Wall Street Journal
PepsiCo will boost its marketing budget by as much as $600 million this year and will lean on core brands, including its flagship Pepsi-Cola, to try to catch up to rival Coca-Cola Co., especially in North America where results have been sluggish. PepsiCo is cutting about 3% of its global workforce, or 8,700 jobs, and uncovering other cost savings to fund the larger investment behind Pepsi, Mountain Dew, Gatorade, Lays, Doritos and other top brands, as well as to offset what it expects to be another year of high commodity prices. The productivity program is expected to produce $1.5 billion in cost savings by 2014. The plan was unveiled as part of a strategic overhaul at PepsiCo, which is trying to lift shares that have stagnated in recent years. The crux of the plan is to spark growth in North America, where PepsiCo will steer most of the increased marketing dollars.
Abram Brown, Forbes
To regain slipping market share, PepsiCo will cut 8,700 jobs worldwide and spend between $500 and $600 million more on advertising and marketing. This is part of a broader cost-cutting plan that is intended to save the [company] $1.5 billion by 2014. The increase in advertising and marketing will go toward bolstering its iconic brands in North America, where it has lost market share for four straight years. To streamline this process, Pepsi plans to consolidate advertising agencies. Pepsi will also try to simplify its corporate structure with fewer management layers, the company said. It also plans to consolidate manufacturing, warehouse and sales facilities.
Duane D. Stanford, Bloomberg News
PepsiCo plans to cut 8,700 jobs and boost marketing for its brands by as much as $600 million as CEO Indra Nooyi works to turn around the world’s largest snack-food maker. Most of the increased marketing will go to 12 key brands, including Pepsi trademarked soft drinks, Lay’s, Mountain Dew, Gatorade and Tropicana … One hundred million dollars will be spent on display racks and delivery routes, the company said. PepsiCo said benefits from the higher marketing outlays will be seen in the second half of 2012. Massimo d’Amore will step down from his job leading the global beverages unit on Feb. 29 and retire a year later, PepsiCo said in a filing. D’Amore was key in rebranding Pepsi-Cola, Tropicana and Gatorade in recent years. He also was involved in a remake of Tropicana’s packaging in 2009 that later was reversed after customers complained.
OUR VIEW:
PepsiCo and Coca-Cola’s years of reduced ad spending may have hurt them both, as soda sales have been slipping for each. Coca-Cola may have come out on top now in terms of earnings growth, but its lead is reliant on keeping its iconic brand relevant — especially as both soda makers are being criticized for attempts at healthy-living marketing campaigns. It’s a good thing that both brands recognize the value — in spite of a significant spike in commodities prices and the need to cut costs overall — in putting a significant chunk of cash toward preserving their long-term consumer appeal through stronger marketing.
