Nooyi Gets Candid on Importance of Pepsi, Inadequacy of Stevia

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Maybe it’s an opportunity to vent after answering her critics with improved performance for the flagship Pepsi brand lately. Or perhaps PepsiCo CEO Indra Nooyi just wanted to remind an important audience that she isn’t finished with her transformative strategy for one of the world’s largest purveyors of nutritionally dubious foods and beverages.

In any event, Nooyi made what BeverageDaily.com called “surprisingly candid remarks” during an address at a Sanford Bernstein conference in New York this week, touching on why everyone’s all concerned about cola, why she has made such a strong play to develop new natural sweeteners and why highly touted stevia might not be the right thing for the cola market, and why the company’s new “hybrid” pricing strategy is important.[more]

PepsiCo executives long ago foresaw the continued decline in the carbonated soft-drink market, Nooyi said; presumably that’s why PepsiCo has spent several years ramping up its investments in better-for-you beverages ranging from juice to water to oat-based smoothies. That also was why PepsiCo began to invest in technologies that she said “break all of the compromises that people didn’t want to make.”

Those technologies included stevia, a natural sweetener derived from the extract of a native South American bush that has found its way into the global food and beverage mainstream. PepsiCo has put stevia into an Australian version of Pepsi Next, but not the US mid-calorie soda that Nooyi said “is holding its own.”

“Stevia, unfortunately, does not work well in colas,” Nooyi told the gathering—whereupon someone drinking Pepsi Next in Australia at that moment probably put down the can.

Further, Nooyi said at the conference, Pepsi is pursuing its “hybrid everyday value pricing” possibly for the whole US because “short-term pricing action to pursue volume is a wrong strategy in this sort of market.” Sounding much like former JCPenney CEO Ron Johnson in castigating American consumers for chasing price-based promotions, Nooyi said that it is “very important that all the players play a sensible game in this business” in pricing to thwart “irrational behavior in the marketplace.”There’s no word on whether Coca-Cola wants to embrace Nooyi’s definition of pricing “rationality.”

Nooyi also seemed to mount an oblique defense of her long-term strategy for moving PepsiCo out of such a major dependence on the Pepsi brand. Neglecting Pepsi with traditional marketing a few years ago, of course, earned her and the brand a big black eye as Diet Coke surged past regular Pepsi to become the No. 2 soda, behind regular Coke, in all the land. Under pressure from investors and her board, however, a couple of years ago Nooyi finally pivoted back into a more aggressive mode behind Pepsi, boosting marketing spending tremendously through initiatives such as sponsorship of Fox Network’s The X Factor and the most recent Super Bowl halftime show, as well as a partnership with Beyonce.

Meanwhile, of course, Nooyi was goosing PepsiCo’s investments in everything else, from digital marketing to more healthful Frito-Lay snacks, new products under the Quaker Oats brand and a pretty successful reinvention of the Gatorade lineup.

Nevertheless, it seemed that Nooyi still wanted to tweak her critics with one of her remarks this week. “I think there is a manical focus on cola,” she said, “that is not the right way to look at a beverage market that is so huge.”

Expect Nooyi’s internal and external debate on the importance of Pepsi to continue to mark her tenure as CEO.

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