PepsiCo, which today (25 July) reported a drop in quarterly profits, hailed a resilient performance in Europe, amid the economic strife in the region.
The snacks and beverages giant booked a 14% decline in operating income, reflecting higher corporate expenses and pension exposure.
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PepsiCo reported reduced profits from both its food and drinks operations in the Americas. Earnings in Asia, the Middle East and Africa fell amid one-off items.
However, bucking the trend was the company’s European business. PepsiCo booked an 11% increase in operating profit in Europe, despite an extremely tough operating environment. Revenue from Europe fell 5% due to currency exchange. PepsiCo recorded organic sales growth in Europe of 3%.
During a conference call following the results release, PepsiCo CFO Hugh Johnston said: “We continue to build momentum in our Europe business, despite the well-know economic challenges there.”
Gains in the region were driven by PepsiCo’s group-wide focus on brand-building, mix-management, a 4% increase in pricing and productivity initiatives.
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By GlobalData“We maintained a disciplined approach to pricing and mix management combined with terrific execution against an aggressive productivity agenda,” Johnston said.
Significantly, he revealed PepsiCo had reaped the benefits of its geographical spread on the continent, in particular its push into higher-growth eastern European markets.
“Our success in Europe has really been enabled by the transformation we have made to our business over the last few years with a strong focus on expanding in the faster growing eastern European markets, encompassing a broader set of category to cater to more consumer needs,” he revealed.
PepsiCo highlighted it was able to grow its share of the Russian savoury snacks and value-added dairy categories.
While gains in Europe were primarily driven by productivity savings, Johnston told just-food the company had also increased its advertising levels behind its 12 “global mega-brands” in the region.
Johnston said: “The advertising spend in Europe is up as well and it’s up in both snacks and beverages. And up in a substantial way.”
PepsiCo has indicated it is increasing its global advertising and marketing spend by around 40%. Johnston insisted this strategy has already started to pay dividends.
“We are beginning to gain traction with brand equities that are stabilising or improving for our major brands in 85% of our key markets,” he said. “We are massing more and more of the spending increase – virtually all of the spending increase – is going behind the 12 global mega-brands… all the way through from fun-for-you to good-for-you.”
