Pepsi’s Wrong move?

Recently, I read an article about diversification of Pepsi in New York Times. (http://www.nytimes.com/2012/03/13/business/pepsico-executives-line-up-behind-ceo.html?ref=pepsicoinc). I think diversification of brand Pepsi into nutritious segment is not a right strategy.

Pepsi is a brand well known for refreshment. Even their advertisements prove this; they are always clubbed with sports like Cricket, Football etc. The other brands in Pepsi portfolio are Frito-Lay, Tropicana, Quaker, and Gatorade. The brands like Quaker, Frito-Lay and Tropicana are unrelated to their core business. This shows, they are moving away from the core competence of the brand.

I accept that people are becoming more health conscious and hence the non-carbonated beverage segment has one of the fastest growing businesses. But adding non- carbonated brands in their portfolio is not right, since it is against their core product Pepsi. These brands will kill their own market share, because the customers for both the carbonated and non-carbonated segments are almost the same. Customers will get confused when single company advertises to take both carbonated and non–carbonated drinks. This will surely dilute their brand image. Even the non-carbonated beverage segment is more competitive with players like Parle, Nestle, Dabur, etc. who have strongly established their brands.

Why Pepsi wants to get into nutritious segment?

In global soft drink industry, there is not much competition; only two players like Pepsi and Coco Cola are enjoying the market share. But in oats and chips segment, the market is too crowded.  In this industry, entry and exit of the market is easy. Take the case of chips market- after the entry of Lays in India, companies like ITC (Bingo), Parle (Hippo) and Perfetti (Stop Not) have entered into the market and started killing market share of Lays. Like this in oats market, there is tight competition from Horlicks and some other regional players.

I think, Pepsi believed that they can easily sell whatever products they include in their portfolio due to their strong distribution network. But the case is not like that; due to addition of more products in same distribution channels, conflict among the products is created.

This case is not like ITC, compelled to get out of cigarette business and that’s why they had to get into biscuit and other businesses. Even ITC won’t mind if their cigarette business stops giving revenue. If Pepsi would want to be like ITC then this might be a right strategy!

In developed countries like the US the market of soft drink is almost saturated. Because of this, getting into nutritious segment is not a wise idea. Pepsi has to innovate products like diet Pepsi and has to create new market. I think creating new market in existing industry is much easier than competing with more players in new industry.

Recently in the US market, Pepsi lost their market share by 4%, but at the same time Coco-Cola market share increased by 20%.

This point clearly proves that current strategies of Pepsi are not doing well. I strongly believe over a period of time customers would forget the refreshing image of Pepsi, if it continuously added nutritious products in their portfolio.