Pepsi’s higher investment in marketing pays off

PepsiCo’s share price hit a record high earlier this week after the food and beverage giant reported its biggest sales increase in more than three years, mainly attributed to its investment in marketing.

According to a statement detailing its first-quarter 2019 results, PepsiCo’s net revenue for the three months to March 23 grew 2.6% to USD$12.88bn while net income was USD$1.41bn.

Total organic sales, a much-watched metric that strips out currency fluctuations and acquisitions, increased 5.2%, including a 2.5% growth at the company’s important North America beverage unit, which makes up at least a third of PepsiCo’s revenues.

The results are the first since Ramon Laguarta took over as CEO in October 2018 and, under his direction, PepsiCo boosted its marketing budget at the same time as focusing more on healthier snacks and beverages in keeping with consumer trends.

“It is clear evidence that the advertising that we’ve been putting into the market place is working … maybe most encouragingly [for] the Pepsi business,” said Hugh Johnston, PepsiCo’s CFO, in comments reported by Reuters.

“With guidance unchanged, Pepsi may be in a position to increase spending behind its brands – something we feel is strategically important and will bear fruit down the road,” added Benjamin Altman, CEO of Altman Advisors.

That potential boost for the advertising industry does indeed appear to be in the offing, with PepsiCo saying it would increase its marketing spend to try to sustain growth in its key North American beverage unit, which faces pressure from rivals offering less-sugary options.

Meanwhile, Hugh Johnston attributed some of the company’s success in the last quarter to its marketing campaign centred around the Super Bowl in February. This included mass billboard advertising in Atlanta, the host city which is also home to arch-rival Coca-Cola.

“We really had a very big Super Bowl, bigger than we’ve had in previous years,” he told the Financial Times, adding that a 6% rise in organic sales at its Frito Lay division was “extraordinary”.


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