Economic Report - Pepsico Wakes up and Smells the Cola

PepsiCo Wakes Up and Smells the Cola

Summary

PepsiCo has hit a large drop in sales of the original Pepsi Cola drink and will turn attention back to marketing the cola again and is launching its first advertising campaign for the Pepsi-Cola in three years. Pepsi has fallen to the third ranking spot behind not only Coke, but also Diet Coke within the last year. Many of the Pepsi bottlers who rely on the soda for much of their profits are anxious to get the campaign off the ground. Since it is the middle of summer, bottlers are wishing the campaign would happen sooner rather than later.

There have been several upsets within the organization of Pepsi within the last several months with the resignation of the chief marketing officer and the loss of more than 15 marketing executives over the last several years. The executives are leaving because they are not allowed to make marketing decisions, which is something they are hired to make.

The current Chief Executive Indra Nooyi is being accused of taking her eyes off the company's biggest seller. She is also being doubted by investors and industry insiders who are concerned that her push to healthier brands has distracted the company from core products as she has set a goal to double the revenue of nutritious products to $30 billion by 2020. Pepsi has also agreed to pay $3.8 billion to acquire a 66% share in Wimm-Bill-Dann Foods OJC, which is a leading Russian dairy-products maker. Pepsi and Diet Pepsi sales fell 4.8% and 5.2% in 2010, while Coke and Diet Coke only fell .5% and 1%. The products that PepsiCo call "good for you" only make about 20% of revenue, the rest comes from the drink and snacks the company calls "fun for you", which includes Lay's Potato Chips, Doritos and Pepsi-Cola.

PepsiCo has did not advertise in the 2010 Super Bowl which was the first time in 24 years, instead they put millions in an online charity called the Refresh Project, which got a large number of votes for charitable projects, however, it ended up being dominated by alliances and did nothing to help sell soda.

PepsiCo is planning to spend 30% more on TV advertising along with allowing the product to be hawked on Simon Cowell's "X Factor" in a $60 million sponsorship deal in the fall.

Economic Significance

There are several concepts that relate to the economics being studied in this class:

* Markets - a market consists of all firms and individuals who are willing and able to buy or sell a particular product. PepsiCo started out selling cola and has expanded to items that relate to the consumer who is looking for a higher nutritional value. They are part of a competitive market because they have a large competitor in Coke.

* Bundling - When PepsiCo first started their