Pepsi works to cater to belt-tightening consumers

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PURCHASE, N.Y. — High demand for potato chips and other snacks, as well as growth in emerging markets, fueled an 8.9% increase in PepsiCo Inc.’s third-quarter profit despite sluggish North American beverage sales.

Against the backdrop of recession-induced thrift, PepsiCo will aim more of its products and marketing to belt-tightening consumers who are favoring tap water and seeking bargains on snacks, chairman and chief executive officer Indra Nooyi said in a conference call this month.

"One part of the effort has to be on launching lower-priced options," Nooyi said.

The company has already initiated end-of-the-month promotions on chips to lift sales when consumers are running low on cash. Chief financial officer Richard Goodman said new snack bags with 20% more volume have had less than widespread appeal, reflecting price sensitivity.

The company’s profit rose to $1.72 billion, or $1.09 a share, from $1.58 billion, or 99 cents a share, a year ago, thanks to a favorable tax rate and cost-cutting measures, such as making plants more efficient. But revenue for the quarter, which ended September 5, dipped 1.5% to $11.08 billion, as consumers opted for cheaper products.

U.S. beverage sales have been soft for nearly two years at PepsiCo and rival Coca-Cola Co., among other companies, as shoppers have curtailed spending. The domestic beverage industry recorded its first-ever yearly drop in volume last year, and the volume at PepsiCo’s Americas beverages unit slipped 6% in the third quarter. Its revenue decreased 7% during the period.

Also in October, PepsiCo announced a pact with Anheuser-Busch to jointly purchase certain indirect goods and services used primarily for their U.S. operations, such as information technology hardware; office supplies; travel and facilities services; transportation; and maintenance, repair and operating supplies.

The agreement allows both companies to purchase goods and services more efficiently at competitive prices – managing costs that can be invested back into their businesses. A team of procurement experts for each company will focus on common areas of spending and negotiate purchases on behalf of both companies.

On the executive front, PepsiCo named Jaya Kumar president of the $2 billion Quaker Foods & Snacks unit. Kumar will oversee a portfolio of brands including Quaker hot cereals and Chewy granola bars, Cap’n Crunch, Life and Quaker Oatmeal Squares ready-to-eat cereals, Aunt Jemima mixes and syrups, Rice-A-Roni and Near East side dishes, and Quaker’s light snacks. He will report to PepsiCo Americas Foods CEO John Compton.

"Jaya brings a powerful combination of innovation, marketing and retail capabilities to his new role at Quaker," remarks Compton. "As our global megabrand for health and wellness, Quaker is the jewel of our good-for-you portfolio of food brands. Jaya’s passion for growth, coupled with his deep expertise in consumer and shopping insights, is an unbeatable recipe for taking Quaker through its next chapter of growth."

Since joining PepsiCo in 2005, Kumar has worked with the company’s Frito-Lay North America unit, most recently as chief marketing officer. While at Frito-Lay, he has transformed the marketing agenda and key organizational capabilities, driving innovation by integrating customer sales, marketing and research and development.

Under his leadership, the division launched the ground-breaking "Crash the Super Bowl" consumer promotion for Doritos, which engaged consumers in creating their own television commercials for broadcast during the Super Bowl. One of those consumer-created entries took the top spot on the USA Today Ad Meter this year and earned a $1 million prize from Frito-Lay.


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