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How PepsiCo Plans to Boost Beverage Sales in 2015

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Nov. 20 2020, Updated 3:04 p.m. ET

New products

In Parts 1 and 2 of this series, we looked in detail at the new flavors PepsiCo (PEP) has launched in its soda and AMP Energy product lines. PepsiCo has been investing heavily in the research and development of new beverage and snack food products. Some of PepsiCo’s recently launched beverage products include Mountain Dew DEWshine, Tropicana Farmstand Tropical Green, and new Naked Juice flavors like Chia Cherry Lime, Chia Sweet Peach, and Bright Beets.

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Focus on innovation

In fiscal 2014, PepsiCo spent $718 million on research and development, up 8.0% from the previous year. The growing competition in both the snack food and beverage categories makes it important for PepsiCo to capture the growing need for convenient, nutritious products and the huge demand for new flavors in the both the snack and beverage lines.

Why new products are crucial

PepsiCo and its peers Coca-Cola (KO) and Dr Pepper Snapple (DPS) have been under pressure in recent years due to declining soda volumes in the US market. According to Beverage Digest, carbonated soft drink (or CSD) volumes declined by 0.9% in 2014 to 8.8 billion 192-ounce cases. Excluding energy drinks, the CSD category declined by 1.2% in 2014.

It’s important for PepsiCo to focus on fresh offerings in order to attract consumers to carbonated as well as noncarbonated beverage categories. PepsiCo recently launched Pepsi Limon, which shows the company recognizes the need for more flavored variants in the soda market. PepsiCo’s beverage business is also developing new products in other growth categories such as enhanced water and ready-to-drink teas. PepsiCo is already the leader in the sports beverage market with its Gatorade brand.

According to PepsiCo, innovation accounted for more than 9.0% of its net revenue in 2014, up from 8.0% in 2012. PepsiCo expects its recently launched flavors to boost beverage sales, which accounted for 47.0% of the company’s total revenue in 2014.

PepsiCo makes up ~4.5% and 1.3% of the Consumer Staples Select Sector SPDR Fund (XLP) and the iShares Russell 1000 Growth ETF (IWF), respectively.

For more updates, visit our Nonalcoholic Beverages page.

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