Here’s the lowdown on PepsiCo’s (NYSE:PEP) orange juice strategy from Global Beverages chief Massimo D’Amore. The company’s Tropicana brand, the biggest OJ brand in the U.S., gave up market share last year to Coca-Cola’s (NYSE:KO) Minute Maid and Simply Orange brands. Partly to blame was a disastrous repackaging move that had consumers confused and led to a reversal of the strategy.
However, last year Coke and Pepsico had to contend with slowing OJ sales due to the poor economic conditions. Pepsico also faces stiff competition from Coke’s highly successful strategy of luring Pepsi OJ customers to higher or lower price points away from Tropicana. As if this were not enough, Coke has now launched a frontal assault on Tropicana in the mid-market – its mid-priced Minute Maid Pure Squeezed is also taking away market.
How is Pepsico fighting the (pardon the pun) squeeze?
One of the strategies to grow Tropicana volumes is to water it down. Huh? Actually more consumers are wanting OJ that is less thicker and lighter on calories. By diluting it, Pepsico boosts both margins and sales. “They themselves add water before drinking OJ,” D’Amore says. “So why not add the water ourselves and charge for it?”
Pepsico’s new brand, Trop50, is a 42 percent orange juice using a natural stevia-based low-calorie sweetener. A premium product launched in 2009, its sales are growing 50 percent annually – “I prefer to flank my core business with Trop50 where I make 10 to 15 points of margin more than to flank it with a lower price product,” D’Amore said.
Another strategy is to use its Dole brand to target the rapidly increasing Hispanic population in the U.S. This means less-than-100-percent juices in the mid-price tier could see volume increases. Packaging is another area that Pepsi is looking at – Tropicana launched a see-through carafe for its Tropicana Pure Premium, a la Coke’s Simply Orange carafe.
Here’s how PEP and KO are trading now:
Pepsico, Inc. (NYSE:PEP): PEP shares recently traded at $63.45, down $0.07, or 0.11%. They have traded in a 52-week range of $58.50 to $71.89. Volume today was 2,403,496 shares versus a 3-month average volume of 6,748,300 shares. The company’s trailing P/E is 15.91, while trailing earnings are $3.99 per share.
The Coca-Cola Company (NYSE:KO): KO shares recently traded at $68.67, down $0.23, or 0.33%. They have traded in a 52-week range of $61.29 to $71.77. Volume today was 1,721,610 shares versus a 3-month average volume of 7,638,340 shares. The company’s trailing P/E is 18.63, while trailing earnings are $3.69 per share.
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