As it implements a global re-set of its Pepsi brand and corporate priorities, PepsiCo is girding for even more pitched battle with a re-energized Coca-Cola. And if only because PepsiCo plans to boost spending on its major brands by at least a half-billion dollars this year, the competition between the two giants should be the sharpest in some time.
PepsiCo CEO Indra Nooyi and the company's board announced strategic investments during their business review last week that are aimed at the major pressure points being applied lately by restive PepsiCo investors and others. In the meantime, Coca-Cola also announced massive overall cost cuts as well as a decision to use the savings of up to $650 million in extra marketing and brand buildling.
The boost in marketing outlays announced by PepsiCo will be devoted to the largest beverage brands, especially struggling Pepsi, as well as snack brands. But many of the agencies that have been serving the brands to date are being swept out in a massive 65% reduction in the number of partners used by the beverages business. And Pepsi will be culling many of the non-performers from its 400-plus global brands.
At the same time, PepsiCo is shedding about 3 percent of its global workforce, some 8,700 jobs across 30 countries, as part of a plan to reduce overall costs by $1.5 billion between this year and 2014. That should help the bottom line where investors' concerns have been focused.
On the top line, Nooyi stressed that some of the more radical ideas for addressing PepsiCo's financial woes, and its quiescent stock price, aren't going anywhere. That includes the notion of breaking up PepsiCo into higher- and slower-growth companies, as Kraft announced last year. Nor is Nooyi leaving the CEO's post anytime soon. But she is going to intensify efforts to bring qualified executive help beneath her and flatten the company's management structure, as she says goodbye to retiring global beverage president Massimo d'Amore and digital/social marketing head B. Bonin Bough, who oversaw the Pepsi Refresh Project and has just moved to Kraft Foods in a similar role.
Fortune calls this the biggest challenge of her tenure at PepsiCo, commenting that "Nooyi has boldly changed Pepsi's strategy to emphasize nutritious, 'good-for-you' products like Quaker oatmeal in addition to its 'fun-for-you' (read: 'bad-for-you') products like Mountain Dew and Fritos. The new strategy is visionary and clearly in harmony with societal changes. The trouble is that good-for-you products aren't nearly as profitable as branded sugar-water."
Nooyi said she remains committed to the company's shift toward "better-for-you" foods, which now account for 20 percent of total revenues from 17 percent five years ago. But clearly, the commitment of more marketing resources to Pepsi signals that the CEO might have to be more cautious in takings steps she has discussed to intensify the better-for-you push, such as developing a new yogurt brand in the U.S.
Coke executives, meanwhile, waxed optimistic about their own plans to re-gird for a potentially leaner and more determined PepsiCo. "This program will further enable our efforts to strengthen our brands and reinvest our resources to drive long-term profitable growth," Coca-Cola CEO Muhtar Kent stated during an earnings call with analysts last week.
Whatever happens, the cola wars are about to get more interesting. Listen to Nooyi outlining PepsiCo's new strategic plan below: