By Laura Cooper
The job of rescuing Pepsi-Cola starts very early in the morning for Ram Krishnan.
On a recent trip to San Antonio, the head of PepsiCo's U.S. beverage business was up before sunrise for a 5 a.m. meeting with the local sales team, followed by a roundtable discussion at 7 a.m. with managers.
At 8 a.m., they hit the streets. They split into four teams and started visiting stores -- Walmart, Dollar General, Circle K, 7-Eleven and four others. They walked through the aisles with scorecards. Are the shelves full? Are the right PepsiCo drinks highlighted? What about the product mix? The shelf tags? The drink cooler at the checkout?
Since taking charge of PepsiCo's all-important U.S. beverage business in February 2024, Krishnan has been trying to fix a big problem. The U.S. market share for Pepsi's classic cola -- which once aspired to overtake Coca-Cola's as the nation's favorite soda -- had slipped to No. 3, behind Dr Pepper. And some of the company's other drinks, including Gatorade, had been steadily bleeding market share.
"Maybe we lost the focus," Krishnan said in an interview from Texas.
His campaign to claw back customers has kept him on the road almost nonstop, traipsing through stores, Monday through Thursday, week after week, all over the country. "When you're in the situation you're in and want to make some big transformative moves, I think it helps keep the pace and intensity up," he said.
Times are tough for legacy sodas, and they aren't likely to be helped by Health and Human Services Secretary Robert F. Kennedy Jr. referring to sugary, carbonated drinks as "poison." Energy drinks and niche beverages billed as healthier have been grabbing market share for years, and the U.S. soda market now resembles a slowly melting ice cube.
U.S. sales volume of Coca-Cola branded sodas slid 14% between 2010 and 2023, according to the most recent annual data from industry tracker Beverage Digest, but Pepsi's volume, including for Diet Pepsi and Pepsi Zero Sugar, plummeted 32%.
In February, an analyst put the obvious question to PepsiCo Chief Executive Ramon Laguarta: What was going on?
Laguarta didn't bother with spin. "We are seeing some hope, but hope is not where we want to be," he told analysts gathered for a conference in Orlando. "We are disappointed we have not been able to gain share in the last few years. It's a miss, I would say, from our side."
PepsiCo has been focusing for years on beefing up its food business, anchored by brands such as Doritos, Cheetos and Lay's, and food accounted for 58% of its revenue in 2024. But Laguarta told analysts that the Pepsi brand remains vital to expanding the drinks business.
To that end, the company is trying to recapture some of its old beverage magic, which arguably peaked with the "cola wars" of the 1970s and 1980s, when its high-profile "Pepsi Challenge" marketing campaign helped it narrow the gap with No. 1 Coke.
In February, the company dusted off the Pepsi Challenge, this time pitting Pepsi Zero Sugar against Coca-Cola Zero Sugar. In advertising, it aims to position Pepsi as better than Coke or other beverages for pairing with food. The pitch: Food deserves Pepsi.
"There's scientific evidence that because of a unique mix of spices, the level of carbonation and the sweetness in a bottle of Pepsi, that it actually goes well with most foods," said Krishnan, referring to the company's own research.
The broader plan is to bring the soda and snacks businesses closer together, uniting distribution under the same executive. One aim is to cut costs -- to avoid sending separate trucks stocked with Pepsi and Lay's to the same store.
Yet some of PepsiCo's independent distributors -- many of them family businesses that have bottled Pepsi for generations -- said they had never seen a worse time for the brand. The company had pivoted so hard away from its soft-drinks business, they said, that they now wonder whether it is too late to resurrect it.
Pepsi Generation
PepsiCo launched the cola wars in the 1960s with its Pepsi Generation campaign. It cast Pepsi as the hip, upstart cola for young people, and Coke as staid and old-fashioned. Pepsi didn't catch up to Coke, but it eventually reached a close second -- thanks in part to Coke's disastrous introduction of New Coke.
Pepsi-Cola's U.S. market share peaked in the 1980s, when Pepsi ads featured edgy stars like Madonna and David Bowie, and the company signed a then-record $5 million sponsorship deal with Michael Jackson.
Over the years, PepsiCo had gotten into snacks and restaurants in a big way with the acquisitions of Frito-Lay, Taco Bell, Pizza Hut and Kentucky Fried Chicken. It spun off its restaurants in the late 90s, and in 2001 bought Quaker Oats, maker of oatmeal, Cap'n Crunch cereal and Gatorade drinks. But Pepsi remained its most prestigious brand -- a plum assignment for its executives.
That began changing in 2006 with the arrival of Chief Executive Indra Nooyi. Consumers were reading food labels more carefully, and per capita consumption of soda, long a growth engine, had begun to decline in the U.S.
Nooyi shifted marketing spending away from the company's namesake cola, part of a push into healthier foods and drinks. She directed research and development spending toward lower- and zero-sugar drinks. The company bought Naked Juice and KeVita kombucha and formed a joint venture to sell Sabra hummus.
Its pivot into food was the opposite of Coca-Cola's strategy. James Quincey, Coke's chief executive, said in a recent interview that his company's decision not to expand beyond drinks had enabled it to outperform Pepsi. "We have focused on being a beverage company," he said.
In 2017, PepsiCo acknowledged that Pepsi and Mountain Dew had lost market share because the company had shifted too much advertising spending away from them.
When Laguarta took over as CEO in 2018, he pledged to revive the company's U.S. soda business. Still, PepsiCo devoted considerable resources to energy drinks and food. It acquired the Rockstar energy-drink brand for $3.85 billion and introduced energy-drink versions of Mountain Dew and Gatorade. It struck a short-lived distribution deal with energy-drink brand Bang, and later took a small stake in the fast-growing startup Celsius.
Laguarta boosted marketing and research-and-development spending for the company's biggest snack brands, creating new variations such as mini Doritos and Cheetos Mac 'n Cheese. He wants people to think of PepsiCo as a food and agriculture business. He considered changing the company's name but decided he couldn't justify the expense.
When Americans hunkered down in the Covid-19 pandemic, they reached for nostalgic brands like Coke and Pepsi. Pepsi-Cola's share of U.S. carbonated soft drinks sales volume bumped up in 2020 and 2021, then resumed its downward trajectory the following year, according to industry tracker Beverage Digest.
Although Pepsi's classic "blue can" soda fell to No. 3 in market share, the company notes that it has held on to the No. 2 market-share slot when all Pepsi-branded sodas, including Pepsi Zero Sugar and Diet Pepsi, are taken into account.
In 2023, PepsiCo made two moves to try to jump-start soda sales. It introduced a new brand logo for Pepsi, marking the cola's 125th anniversary, and launched a new lemon-lime soda called Starry to compete with Coca-Cola's Sprite and Keurig Dr Pepper's 7UP.
But its ad spending has continued to lag behind. In 2023, the Pepsi brand spent about half as much as Coke did on U.S. ads, estimated ad-tracking firm MediaRadar, and in the first 11 months of 2024, Coke outspent Pepsi by even more.
Krishnan said his first priority was to reverse the decline in Gatorade's market share, which he said he accomplished last year. His next goal was turning around the soft drinks business.
After speaking to retailers, bottling operators and previous PepsiCo beverage executives, he concluded that the Pepsi brand had lost its way. "We were doing too many things," he said. "We were doing music, we were doing sports -- every different communication was a little different."
Even when shoppers wanted the company's drinks, he said, they often couldn't find them on store shelves.
Roughly 25% of PepsiCo's U.S. beverage distribution is handled by independent businesses. The declining sales volume has affected independent bottling businesses like the one Tim Tenney runs in New York's Hudson Valley.
His family's ties to Pepsi go back nearly a century. In 1931, his grandfather, an investment banker, helped a candy executive buy Pepsi-Cola out of bankruptcy, and he subsequently served on the soda company's board. His father worked at PepsiCo's offices in Queens, N.Y. -- where a Pepsi-Cola sign still overlooks the East River -- before buying a bottling franchise.
Tenney said he started working in that business at age 13. Now 75, he remains its CEO. Pepsi's falling sales volume, he said, has hurt the company. In recent years, he has begun stocking new products, including Keurig Dr Pepper-backed C4 Energy. Tenney's company is currently involved in litigation with PepsiCo about the rights to distribute Gatorade.
"Hopefully, the team in Purchase can turn it around," he said of Pepsi's sales.
Other independent bottlers around the country said in interviews that Pepsi's declining sales volumes and distribution problems had hurt the brand and their own businesses.
Some have said that PepsiCo's North American beverage business would fare better as a stand-alone company -- a change activist investor Nelson Peltz unsuccessfully pushed for more than a decade ago. If the business were in the hands of a private-equity firm or hedge fund, the bottlers contend, it would get more attention than it does now from PepsiCo.
Overhaul plans
Late last year, Krishan said, the company made important changes to his sales operation that he hopes will fix some of the problems. It overhauled its sales management structure. "There will be consistency on who goes to the store and who the store manager sees," he said.
PepsiCo has long been good at keeping store shelves stocked with its snacks and other food offerings. In December, it appointed its food chief, Steven Williams, to head a new group that will unite the operational parts of the food and beverage businesses, including PepsiCo's own bottling and distribution. The idea is to eliminate such wasteful practice as sending separate trucks for food and beverages to the same stores.
The company's latest ads lean into its claim that Pepsi goes well with food. One recent online campaign portrays "undercover agents" swiping drinks from unsuspecting customers at McDonald's and other fast-food restaurants and replacing them with Pepsi. "Every burger deserves Pepsi, " the ad asserts.
Krishnan said the company is spending more to market Pepsi, Mountain Dew and sports drinks, and focusing more on social-media advertising.
The new taste-oriented campaign, he said, is working. Sales in retail stores, by dollar amount, of classic blue-can Pepsi, after slipping 1.5% in 2024, have increased 5.8% so far this year, he said. Sales of Wild Cherry Pepsi and Pepsi Zero Sugar have been growing double digits.
Meanwhile, the company continues to pour money into other beverages. It recently agreed to acquire prebiotic soda brand Poppi for $1.95 billion. The acquisition, Krishnan said, helps PepsiCo appeal to health-conscious younger drinkers.
Krishnan said he hopes that PepsiCo's critics, including independent bottlers, see that the new initiatives are paying off in increased sales of its beverages.
"Not celebrating at all because it is very, very early in the game," he said. But proof was emerging, he said, to show that "some of the pivots that we are making are working."
Write to Laura Cooper at laura.cooper@wsj.com
(END) Dow Jones Newswires
April 02, 2025 21:00 ET (01:00 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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