Pushed to the wall with its aggressive Rs 5 price strategy and pesticides controversy, the soft drinks major PepsiCo India is focusing on consolidation and tightening its belt this summer. So, while the downsides are that there will be no major launches during the year, and a rationalisation of its stock keeping units (SKUs) is on the cards, the upside is that its splurge on advertising will continue.
“We need to consolidate. We don’t want to spread ourselves too thin by having a lot of flavours and extensions,” Pepsi Foods Pvt Ltd executive director, marketing, Shashi K Kalathil told the FE.
Arch rival Coca-Cola India, it may be mentioned, is soon launching Vanila Coke, a flavoured drink in India.
Pepsi last year launched two brand extensions of its flagship cola brand, Pepsi Aha and Pepsi Blue. While the former was phased out owing to its slow offtake, the latter was launched as a limited edition to coincide with the Cricket World Cup and to bring excitement in the market. Says, Mr Kalathil, though Pepsi Blue did not augur enough sales, it helped the flagship brand to gain volumes.
The Rs 5 price strategy, admitted Mr Kalathil, had punctured Pepsi’s profitability model. “At these prices (Rs 5 for 200-ml returnable glass bottle), we can’t break even. True, it’s a complex equation but we are not looking at immediate returns.”
However, the Rs 5 price point will remain a long-term strategy in Pepsi’s marketing plan. “The strategy is here to stay. It allows you to go wider and deeper but logistics is a challenge...,” he added.
To tackle that, the company has begun, besides several cost cutting initiatives, implementing a second round of ERP (enterprise resource planning) which involves ‘huge’ investment. The first round was implemented in 1998.
Even as Pepsi is cutting costs at the back-end to sustain its price strategy, it is not squeezing its advertising and marketing budget. The marketing agenda for the year says it all: the company will further strengthen flagship brand Pepsi’s re-launch (it has launched a new line Yeh Pyaas Hai Badi to replace its Yeh Dil Maange More after a gap of five years with a star studded television commercial (TVC), in addition to three cricket specific TVCs for the on-going Indo-Pak series) with new TVCs; flaunt its flavour brands Mirinda and 7Up with fresh advertising, and sustain Mo-untain Dew’s market share with a second round of advertising.
“Mountain Dew has captured 5 per cent market share which is huge for a flavour brand. The challenge is to sustain it,” Mr Kalathil claimed. Further, it will continue to connect with more cricket, movies, and music all through the year (see box).
While refusing to give out its marketing budget, Mr Kalathil said that Pepsi is spending as much as it did last year. The company is believed to have spent over Rs 30 crore last year on advertising. “Yes, there have been high risk investments (in advertising)—but they have worked,” Mr Kalathil said. That may then actually give it much more bang for its buck considering that World Cup is a much bigger platform than a single Indo-Pak series.
Reasons Mr Kalathil, “it’s a challenge. We are not in a position to drop budgets just because we have dropped prices. At the end of the day, we are a category driven by impulse and have to be strong in advertising.”
Meanwhile, Pepsi is also taking a re-look at its large portfolio of SKUs—largely in the PET and home consumption segment. The company will be focusing more on 2-litre PET packs which is at present priced at Rs 35 instead of 1.5-litre PET bottle, which at present is being promoted by Coke. So, while 300-ml will be pushed only as a retail channel SKU, 2-litre will drive in-home consumption and 500-ml and 600-ml PET packs will be positioned as an on-the-go pack.
Will all that bring some cheer to the company’s sales which were affected by the pesticides controversy, last year? By Mr Kalathil’s own admission, Pepsi “was headed for a 30 per cent volume growth despite the 200-ml SKU downsizing the market but the growth trajectory changed with the pesticides issue and we ended the year with a 20 per cent plus.”
Claiming that the company has been able to bounce back post the pesticides controversy, Mr Kalathil said, “we have had a good start with the early onset of summer. We are hoping to recover the trajectory and post a volume growth of mid 20s and high 20s during the year.”