PepsiCo has said it remains focused on “balancing” the performance of Frito-Lay as it looks to build momentum in the turnaround of its North American snack food business.
The US snacks-to-cola giant today (17 October) said it has managed to reverse declining sales trends at Frito-Lay North America, its US$13bn snack and convenient foods business.
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PepsiCo booked a 3% increase in third-quarter net revenue at the unit. Operating profit was up 1% in the quarter, reflecting higher commodity costs and a “significant increase” in marketing spending, the group added.
Commenting on Frito-Lay’s results during a conference call, PepsiCo chairman and CEO Indra Nooyi said the unit’s improved performance was being driven by the increased investment in advertising.
PepsiCo has upped the amount it spends on advertising its US snack brands by 41% year-on-year following the launch of its company-wide turnaround plan in February. This higher investment level is starting to translate to top-line gains, Nooyi said.
“At Frito-Lay North America increased advertising behind our mainstream products is strengthening our performance,” Nooyi commented.
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By GlobalData“Brand equity typically takes 12-18 months to show sustained improvement. Interestingly, we are already beginning to show improvement over much of the brand portfolio,” Nooyi emphasised. “The efforts that we are undertaking, we are already beginning to see some results, which is very comforting.”
According to Tom Greco, president of Frito-Lay North America, Frito-Lay is focused on “balancing profit and growing share”. While PepsiCo is investing heavily in improving its brand equity, it is also pushing through price increases to offset higher commodity costs to shore-up margins. The group is avoiding competitive activity that would see it chasing unprofitable volume, management added.
During the third quarter, Frito-Lay volumes were up 1%, while price increases contributed 2% to the unit’s sales gain.
The company has been able to grow its share of premium sales and “stabilise” its share of mainstream products, Greco said. In the value segment, PepsiCo is looking at how to build share without cannibalising mainstream sales.
“We are looking to [strike a] balance between maintaining our focus on mainstream and growing share in premium” while capitalising on the “big” growth potential offered by the value segment, Grecco concluded.
