PepsiCo sees new drinks, bundling fueling growth
NEW YORK (Reuters) - PepsiCo Inc (PEP.N), which just acquired its largest North American bottlers, is using a mix of new drinks, product bundling and simpler distribution to return that business to growth.
The maker of Diet Pepsi, Sierra Mist and Tropicana juice gave a 3-year financial outlook on Tuesday for the Americas beverage business, predicting low-single-digit revenue growth and mid-single-digit profit growth.
Eric Foss, chief executive of the newly formed bottling business, said the forecast does not include estimated cost savings of $400 million from last month's bottler acquisitions.
PepsiCo just bought its two largest bottlers for $7.8 billion, giving it control over the distribution of 80 percent of all its drinks sold in North America. The move allows it to speed up decision making and simplify distribution, such as having only one sales associate per retailer instead of one from PepsiCo and one from a bottler.
On the second day of a 2-day analyst meeting at New York's Yankee Stadium, Foss said there could be room for further consolidation.
"If there are interested sellers, I think we're interested buyers," Foss said.
In a presentation, Foss said the acquisition unlocked new opportunities to market various products together to boost sales, such as selling the company's Frito-Lay snacks bundled with its soft drinks.
PepsiCo executives also unveiled new drinks, such as a zero-calorie SoBe Lifewater energy drink made with a natural sweetener and a Propel enhanced-water drink with zero calories.
The company's new "G Series Pro" Gatorade drinks, aimed at serious athletes, will be on sale at GNC's 5,500 domestic stores, starting May 1, PepsiCo said. Two months after that, the premium-priced line will be sold at Dick's Sporting Goods Inc (DKS.N) stores and then at other specialty retailers.
Massimo d'Amore, chief executive officer of PepsiCo Beverages America, said the repositioned Gatorade brand, now known as "G," can increase its revenue 4 percent to 6 percent with a job-led recovery in the economy.
Foss sees sales volume in the entire packaged beverage category to fall at a low single-digit rate this year. For 2011 and beyond, he expects volume to grow about 1 percent, in line with population growth.
Adding on the impact of price increases, Foss expects industry-wide revenue to rise about 3 percent to 4 percent.
PepsiCo CEO Indra Nooyi said on Monday that a key goal was to restore the company's North American beverage market to profitable, sustainable growth, starting in 2010.
Regarding faster-growing energy drinks, d'Amore said PepsiCo would work to increase its own brands, which include Amp, rather than acquire an energy drink company, such as Monster energy drink maker Hansen Natural Corp HANS.O.
D'Amore also said the company has a broad pipeline of natural, low-calorie sweeteners, which he said will help the company in the event a tax on sugary soft drinks gets passed.
Current drinks using a sweetener made from the stevia leaf include Trop50, with half the calories of regular Tropicana orange juice and several zero-calorie SoBe Lifewater drinks.
Growing healthcare costs and government budget deficits have prompted more states to consider a tax on full-calorie soft drinks.
D'Amore said work on new sweeteners preceded calls for a soda tax, but the issue has added some urgency to their development.
On the international front, PepsiCo is investing in markets such as the Middle East and China.
In China, PepsiCo is planning to add 14 new bottling plants, bringing the total to 36, which it said will facilitate its expansion from coastal areas to inland areas. It aims also to triple the number of coolers it has in stores and to become the market leader by 2020.
PepsiCo shares rose 54 cents to close at $66.85 on the New York Stock Exchange.