Pepsi’s Chinese advertisement for the Spring Festival, “Bring Music Home to Live a ‘Lovely’ Family Year”, occupies screens on major platforms. However, some dealers told a reporter from Beijing Commercial Daily that Pepsi has reduced its investment in channels such as Pepsi and other beverages, and has even owed dealers nearly one million yuan of promotion costs.
In industry analysts’ opinion, this is an important reason why PepsiCo has fallen behind in its competition with Coca-Cola. In addition, compared to Coca-Cola, Pepsi’s bigger problem lies in the backwardness of product development and not keeping up with the development trend of China’s beverage industry.
Get rid of dependencies
At the end of the year and the beginning of the year, a dealer from Heilongjiang province revealed to a reporter from Beijing Commercial Daily that in recent years, Pepsi Beverage has changed its original style of high investment and has greatly reduced its investment in channel promotion.
The dealer told the reporter that “Pepsi has maintained high competition with Coca-Cola through high investment. However, in recent years, it has been investing less and less in channels and asking dealers to pay part of the promotion costs. Arrears were paid off, and many dealers were losing money. A dealer in Heilongjiang was owed a promotional fee of nearly one million yuan.”
According to the above-mentioned distributors, in a prefecture-level city in Heilongjiang, where PepsiCo’s beverage sales are not ideal, it once agreed with the responsible person of PepsiCo that the distributor has paid a lot of fees and it is now difficult to reimburse. In order to recover the advance payment, he cannot cancel the contract and is now in a dilemma.
Industry insiders said that this is due to the pressure of new retail channels, PepsiCo has reduced its dependence on traditional dealers.
It is understood that Pepsi’s investment in recent years includes increasing production capacity and expanding new market access, merchandise shelves and refrigeration machines, rather than traditional distributors.
Chinese food industry analyst Zhu Danpeng believes that at present PepsiCo is reducing its investment in channels, mainly because PepsiCo is changing the original promotion channels under the company’s overall strategic adjustment.
Data show that Pepsi is continuing to strengthen its omnichannel capabilities, especially in the e-commerce field. In 2019, Pepsi’s e-commerce retail sales are expected to reach nearly $ 2 billion. On January 14, 2020, PepsiCo and JD.com signed a strategic agreement. The two parties will conduct in-depth cooperation around reverse product customization, marketing, data sharing and category management, and supply chain enhancement, and raised a strategic goal of 300% sales growth in three years
Shift of focus
In addition to channel adjustments, Pepsi has also focused on the food sector.
At a performance conference in 2019, Ramon Laguarta, Chairman and CEO of Pepsi, stated that as of the third quarter of 2019, Pepsi Investment involved many large brands and regions, and also supported the development of innovative work and emerging brands.
In August 2018, Pepsi announced a capital increase of nearly US $ 100 million to expand and renovate Shanghai’s Songjiang plant, add a new production line, introduce advanced packaging and warehouse technology, and comprehensively improve the modernization of the plant. Relevant person in charge of Pepsi said that after the completion of the investment, the Pepsi Songjiang plant will increase potato chip production capacity to meet the growing demand of Chinese consumers, and provide about 370 direct employment opportunities and more than a thousand indirect employment opportunities.
In addition, in June 2019, Pepsi announced a $ 50 million investment to build a new Pepsi Food Sichuan production base in the Deyang Economic and Technological Development Zone in Sichuan Province. The plant is also Pepsi’s first potato chip factory in southwest China. On July 26, Pepsi announced an investment of approximately US $ 131 million in China to acquire a 26% stake in Wugu Mofang International Holdings Co., Ltd., becoming the latter’s second largest shareholder to invest in the health food sector.
Regarding the continuous investment in the food field, the relevant person in charge of Pepsi told a reporter from Beijing Business Daily that Pepsi Food business entered China with the introduction of Lay’s potato chips in 1993, and now it’s already a leading snack brand in China. Its Lay’s potato chips, Quaker oatmeal, Doritos, Cheetos are all brands with annual retail sales of more than one billion US dollars.
In 1981, Pepsi built a Pepsi-Cola bottling plant in Shenzhen, announcing the beginning of its investment in China and becoming one of the first American business partners to enter China. In November 2011, Master Kong and Pepsi reached a strategic alliance. And Pepsi will transfer all its equity interests in 24 bottling plants in China to Tingyi Beverage Holdings in exchange for its shares in Tingyi Beverage Holdings.
According to Xu Xiongjun, a strategic positioning expert and founder of Jiude Positioning Consulting, as a food brand, beverages are not their most important business segment, but as the most direct field to compete with Coca-Cola, from the current situation, the gap between PepsiCo and Coca-Cola in beverage has widened.
On the product side, Coca-Cola has launched 12 single products in China in 2019, involving products such as coffee and lemon tea. Especially in the winter of 2019, Coca-Cola launched 4 hot drinks products of different categories and tastes for the first time and sold them in various channels in more than 20 provinces, municipalities and autonomous regions of China. In addition, Coca-Cola also introduced sports drink POWERADE and plant-based drinks to China.
In the new product segment, Pepsi will launch Pepsi Café, a Pepsi energy drink and a limited edition coffee cola drink, in addition to its snow-salt caramel flavor. It is worth noting that Gatorade, Pepsi’s number one global sports drink brand, has been in China for ten years, but has not been an absolute advantage.
Through the new product strategy, Coca-Cola increased the unit price of mainstream products from 3 to 5 yuan in the C-end market, increasing the customer unit price. However, except for Pepsi drinks, which cost 6 yuan / bottle, other mainstream conventional products still maintain the price of 3 yuan / bottle. In the B-end market, Coca-Cola continues to make efforts in the dinner market, while Pepsi Cola mainly focuses on the fast-food market with relatively low unit prices.
From the performance point of view, there is also a gap between the two sides. In 2019, Pepsi achieved revenue of US $ 12.88 billion in the first quarter and net profit of US $ 1.41 billion. Coca-Cola achieved revenue of only $ 8 billion in the first quarter and net profit of $ 1.678 billion. In the second quarter, the sales volume of Coca-Cola soda beverages increased by 3% as a whole. Among them, Classic Coca-Cola grew by 4%, and Zero Sugar Coca-Cola continued to maintain a double-digit growth trend, achieving growth in 7 consecutive quarters. During the same period, PepsiCo also achieved double-digit growth in China, but Ramon Laguarta believes that it reflects “the benefits of PepsiCo’s increased investment.”
“In fact, Pepsi still has certain advantages in the beverage field. If they actively adjust the current strategy, there will still be a lot of room for development in the future,” said Xu Xiongjun.