LIFEWTR on track to generate $200m in retail sales on annualized basis

PepsiCo CEO navigates brave new retailing world: ‘The lines are blurring between channels’

PepsiCo CEO: 'You are beginning to see the limitations of the syndicated data...' (Picture: istockphoto-BsWei)

As the lines between channels continue to blur and sales increasingly shift to untracked channels, CPG companies will have to think about growth opportunities in a more holistic manner, the CEO of PepsiCo told analysts and investors this week.

Speaking on the snacks and beverages giant’s Q2 earnings call a month after Amazon unveiled plans to buy Whole Foods, Indra Nooyi said:

Brick and mortar retailers are building deep e-commerce capability, pure-play e-commerce is moving into brick-and-mortar, and virtually every channel is melding aspects of grocery, convenience, foodservice, meal kits, prepared meals, and home delivery.”

As a result, she said, “You are beginning to see the limitations of the syndicated data, because… the channels are beginning to blur between food service, retail, home delivery, restaurants…

"You now have a shopping occasion being replaced by home delivery or replaced by a meal delivery of kits. So what we have to do is rethink what is the real growth of the food and beverage marketplace in a much more holistic way.”

‘Our e-commerce business is growing brilliantly’

Turning to online sales, she wouldn’t share any numbers, but said: “Our e-commerce business is growing brilliantly. We are doing very, very well…

“We want to make sure that our snacks are more shippable, not just in click and collect, but more also for delivery, so that the cube efficiency is there.”

As regards beverages, she said, “If consumers so desire ice-cold beverages delivered to them… how do we make sure we address this whole delivery of water, because beverages is largely water. So we are looking at meaningful innovation, both in snacks and beverages, in order to address the exploding growth of e-commerce.”

"Virtually every channel is melding aspects of grocery, convenience, foodservice, meal kits, prepared meals, and home delivery..."

Indra Nooyi, CEO, PepsiCo

Impulse sales online

Meanwhile, there is no reason that online platforms cannot drive impulse sales in just the same way as a bricks and mortar store, she claimed: “As people stop going to brick-and-mortar and start shopping only on e-commerce, which well could be the Gen-Z, the new I-generation, if you want to call it that, I think the new digital tools can easily afford you the ability to create the impulse experience online.

“We have seen so many virtual reality tools right now that can actually simulate grocery stores or whatever version of a grocery store you want online, and you can easily navigate the aisles and just with a click shop for whatever you want.”

LIFEWTR on track to generate $200m in retail sales on annualized basis

Drilling down into pockets of growth in the second quarter, Nookyi said Lifewtr – PepsiCo’s upmarket "purified and pH balanced” bottled water brand with added electrolytes – has generated $70m in retail sales after five months on the market and “is on track to generate approximately $200m in retail sales on an annualized basis.”

While the company’s carbonated soft drinks continued to underperform, PepsiCo was encouraged by the performance of Gatorade, LIFEWTR, Lipton, and Rockstar (which it distributes, but does not own), she said.

“On the carbonated side, we are encouraged by the performance of Pepsi Zero Sugar [formerly known as Pepsi Max], but have more work to do on the carbonated portfolio overall. We will also be allocating a bit more marketing behind the big sparkling brand in the second half.

“We have strong activation for this summer behind Pepsi Fire [limited edition cinnamon flavored Pepsi cola] and our DEW-S-A [a combination Mtn DewCode Red, White Out and Voltage] program, followed by strong execution behind the NFL as we get to the fall.”

Carbonated soft drink volumes were down 2% in the second quarter while volumes of non carbonates were up 4%. Volumes were up 1% in Frito-Lay North America and flat at Quaker Foods North America.

Get the full Q2 breakdown HERE.

What does the changing food retail landscape mean for CPG players such as PepsiCo? Wells Fargo weighs in: 

"The long term implications of shifts in the retail landscape - with e-com, foodservice, convenience, grocery, mass, discounters all converging - are vast with many unanswered questions remaining, but a few things we noted, and extrapolated:

  • The relevancy of scanner data and its ability to forecast sales is diminishing at the margin as sales increasingly shift to untracked channels.
  • The premiumization trend demanded by consumers (to create value) and pushed by manufacturers (to drive top-line) should on average have a neg. impact on volumes (i.e. small, premium packs).
  • Headline pricing will remain tough in grocery as retailers fight traffic declines with pricing, but the fragmentation of c-stores (and inability for any meaningful pushback on pricing à la Walmart will likely translate to healthy pricing growth in the c-store channel; in fact, PepsiCo has communicated to c-store retailers a 3-4% price increase across the board in beverages come September. That said, c-store sales growth is decelerating, a trend we are all hearing about from our c-store contacts/coverage.
  • Longer-term, we think PepsiCo is perhaps better positioned relative to its beverage peers to adapt to the ecommerce world given the large portion of its sales from snacks (which by nature of their weight and volume, are vastly easier to ship than beverages."

Source: Wells Fargo report, July 11, 2017

FOOD VISION USA: THE ECOMMERCE CHALLENGE

Find out how CPG brands can navigate the changing food retail landscape to ensure they don't miss out as shoppers explore new direct to consumer options at FOOD VISION USA 2017.

Held at the W Hotel in Chicago on November 13-15, FOOD VISION USA will bring together a clutch of industry luminaries from PeaPod CMO Carrie Bienkowski to Chobani’s new COO Tim BrownVMG Partners md Wayne Wu, Sir Kensington’s co-founder Scott Norton, and execs from several leading meal kit companies.

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