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April 25, 2003

COMMENT: PepsiCo grazing up the profit ladder

PepsiCo has reported a 13% increase in Q1 earnings. Non-carbonated beverages are driving growth in the PepsiCo beverage business, but the reported growth is mostly the result of strong demand for PepsiCo snack products.

PepsiCo has reported a 13% increase in Q1 earnings. Non-carbonated beverages are driving growth in the PepsiCo beverage business, but the reported growth is mostly the result of strong demand for PepsiCo snack products. This growth in snack sales is symptomatic of the evolving eating habits of Americans today.


The word Pepsi may still be synonymous with cola but it appears that carbonated beverages are no longer Pepsi’s only cash cow. PepsiCo has reported a 13% increase in Q1 earnings although carbonated soft drink volume actually declined by 2% despite heavy advertising, promotion and new flavors.


While non-carbonated beverages drove growth in the beverage business, snacks were the real winners. PepsiCo’s Frito Lay division had a strong quarter with revenues up 5%. In particular, robust demand for Twisted Cheetos, Baked Doritos and granola bars seems to be propelling growth.


Driven by time constraints, increasing commute times and smaller households, Americans are replacing structured mealtimes with snacking or ‘grazing’ throughout the day. A Frito Lay study estimates that Americans skipped 40 billion meals last year, and suggests that Americans will continue to skip more meals, intensifying this trend.


PepsiCo is well positioned to take advantage of the continued blurring of mealtimes and to fulfill the demands of an increasingly diverse population. Frito Lay is scheduled to launch several new salty and ‘macro-snack’ products in the current quarter, including a new guacamole-flavored Dorito.


Tapping into rising concerns over total well-being and obesity, PepsiCo also offers a range of healthier foods under the ‘Better-for-you’ label. The range includes Quaker Chewy granola bars, which raced ahead with double-digit growth this quarter.


The fundamental definition of a meal has changed and today a meal could be a can of Diet Pepsi and a bar of chocolate. As restaurants, grocers, food makers and snack specialists strive to keep up with the utter unpredictability of mealtimes, diverse giants like PepsiCo appear to be well positioned for success even in a challenging environment.


Related research: Datamonitor, “Childhood Obesity 2002: How obesity is shaping the U.S. food and beverage markets ” (DMCM0100)

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