Pepsi NEXT lures new consumers into cola category as sales exceed expectations

Speaking at the soft drinks and snack giant’s Q1, 2012 earnings call yesterday, PepsiCo chief executive Indra Nooyi said Pepsi NEXT was “off to a good start​”.

She added: “Initial feedback is that the brand is sourcing volume from other categories, consistent with​ our objective of bringing back lapsed cola users. While it's very early, the results are ahead of our launch expectations.”​

Bringing back lapsed cola users​

Sweetened with high fructose corn syrup, aspartame, Acesulfame K and sucralose, Pepsi NEXT contains 60% fewer calories than regular Pepsi (60 cals in a 12oz can), and has just been rolled out nationally.

The beverage, which was “created for consumers who seek the rich taste of full-calorie cola​” but have “not adopted the flavor profile of a zero calorie cola​”, was also bringing in new consumers to the cola category, claimed Nooyi.

“Interestingly, NEXT is sourcing from outside the cola category. In fact, it's even sourcing from outside the carbonated soft drinks category, which means that lapsed cola users are coming back into the cola category.”​

It’s secured almost a share point just weeks after launch​

But it was important not to get too carried away - at least not yet, she cautioned. ​

“Now I want to make sure that you hear the appropriate caveat. It's too early to call this brand and say it's a gigantic success. But what's surprising to us is a few weeks after the launch, it's now almost one share point, which has not happened in a long time in any new product launch. ​

“So we are watching every metric very, very carefully. And every quarter, we'll update you on progress. But it's really bringing back lapsed cola users, which is what's surprising.”​

For consumers unwilling to compromise on taste​

The launch of Pepsi NEXT follows several abortive attempts by Pepsi to appeal to customers that like the taste of full sugar colas but want to cut calories, including Pepsi XL, which failed to inspire in the mid-1990s, and Pepsi Edge, which was launched in 2004 but axed a year later.

“Historically, consumers have had to choose between zero calorie and full calorie soft drinks​”, said chief financial officer Hugh Johnston at last year’s Barclays Back to School conference.

“Some have been unwilling to compromise on taste and as a result, left the category completely. We need to break this paradigm.​

Speaking on yesterday’s earnings call, he said: “Pepsi NEXT… has really exceeded our expectations coming out of the gates.”​

Innovation focus​

PepsiCo has set a goal of doubling the contribution made by new products to net revenues, said Nooyi.

“Using the Quaker trademark, we're looking to launch more healthy snacks. But what we don't want to do is to​ launch much lower-margin commodity healthy snacks.”​

Meanwhile, recent launch Doritos Locos Tacos - introduced at Taco Bell outlets on March 8 - had been very successful, with more than 16 million units sold to date, she said. “Already, new line extensions are underway to build on the success of this partnership​.”

New launches include Hispanic-inspired flavors under the Lay’s Stax brand and Taqueros, “a value-oriented indulgent, thick and hearty potato chip that addresses the Hispanic meal occasions”. ​

Q1, 2012 results breakdown ​

PepsiCo’s first quarter results “came in right in line with our expectations​”, said Nooyi, with net sales up 4% to $12.43bn in the three months to March 31.  

The increase was driven by strong growth in emerging markets (Asia, Middle East and Africa sales were up 12%), although sales in Europe were up 13%.

In North America, Frito-Lay division sales grew 4%, but Quaker Foods sales dropped 3% and beverages sales fell 2%, with volume down 1%.

Net profit declined slightly from $1.14bn in Q1, 2011 to $1.13bn in Q1, 2012.

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