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 Stroll through any supermarket beverage aisle today and you'll probably see at least a dozen brands of water. In fact, a good portion of space devoted predominately to various soft drinks a decade ago is now occupied by a variety of regional natural spring water, filtered water, flavored water and vitamin-enriched water in every conceivable size and packaging type. That change reflects a relatively sudden and dramatic shift away from sugary, bubbly beverages to more health-conscious hydration, notes Eric Foss, CEO of Somers, N.Y.-based Pepsi Bottling Group (PBG), the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages.
"Five years ago, carbonated soft drinks accounted for 85 percent of our business; now that's down to about 70 percent," reports Foss, who took the company's helm in July 2006. "That change in consumer preference is forcing us to think differently about our strategy and about the marketplace." Once a wholly owned subsidiary of PepsiCo, PBG was spun off as a public entity in 1999. But it remains tightly intertwined with its former parent company, which retains a 40 percent ownership stake in the $13.6 billion operation.
"It's a unique relationship," notes Foss. "The IPO allowed them to focus on what they do well-create great brands, develop great innovation and advertising, and become a true brand builder-and for us to focus on what we do well, which is focus on execution at the point of sale. It's like a successful marriage. It takes a ton of work, communication, time and effort, not to mention give and take, but at the end of the day we're far better off together than we are apart."
In fact, while PBG no longer exclusively sells PepsiCo products, it accounts for more than one-half of the Pepsi-Cola beverages sold in North America, and about 40 percent of the Pepsi-Cola system volume worldwide through its operations in the U.S., Canada, Greece, Mexico, Russia, Spain and Turkey. And Pepsi Co, in turn, provides PBG with a steady stream of new offerings tailored to ever-changing consumer taste preferences.
In the U.S. and Canada, PBG boasts an impressive array of brands, including Pepsi, Diet Pepsi, Wild Cherry Pepsi, Mountain Dew, Diet Mountain Dew, AMP, Aquafina, Lipton, Sierra Mist, Tropicana juice drinks, Mug Root Beer, SoBe, Dole, Dr Pepper and Starbucks Frappuccino. While the company's mission statement remains "We Sell Soda," the bulk of its growth now comes from noncarbonated beverages, particularly its top-selling bottled water brands in the U.S., Russia and Mexico: Aquafina, Aqua Minerale and Electropura respectively.
Foss sees spurring that noncarb sales growth as integral to the company's future. "The first challenge for us today is to reposition our portfolio," he says. "We've got to continue to accelerate our percentage of noncarb beverages, whether that's tea, ready-to-drink coffee or water. The U.S. marketplace is about 50-50 carbonated and noncarbonated beverage, but my business is about 70-30. So the faster we can accelerate development of our noncarb portfolio, the better off we'll be."
That will mean bringing even more iterations of noncarb beverages to those already-crowded super market shelves. PBG recently re positioned SoBe Life Water and launch ed Propel and G2, a lower-calorie version of Gatorade, and Foss expects more new entries to stream into the "hydration" category of the beverage market in the near term.
Boosting international sales, which currently account for 15 percent of profits, is also a key element of his agenda. "Per capita consumption of carbonated soft drinks is lower outside the U.S., so there's good potential for growth," notes Foss, who says Russia and Turkey are his two fastest-growing beverage markets in terms of per capita consumption. "And you're also starting to see more on-the-go beverage consumption, as well as economies growing and becoming more stable."
While PepsiCo handles marketing of brands in the U.S., PBG takes a more hands-on role in building its brands in overseas markets, adds Foss. "Our core challenge is to figure out how to build per capita consumption and drive better house hold penetration of our products," he says. "Then once you get products into the households, how do you drive ounces per occasion and increase purchase amounts when consumers go to an outlet?
"That's the starting point and then it's about executing on that to make sure product is available in the right size and configuration at the right value to incent them to buy," Foss continues. "It's not unlike building the business years ago in the U.S."  |
