Pepsi Can Lift Market By Reviving Old Charm

Pepsi, the flagship brand of PepsiCo (NYSE:PEP), is the second most popular soft drink brand worldwide and trails only Coca Cola (NYSE:KO) Classic in terms of sales. Pepsi’s share in the carbonated soft drink (CSD) market has seen a slight but steady decline over the past few years (from about 11% in 2005 to 10% today), reflective of Coke’s higher popularity.

Pepsi is trying to regain lost share by improving its marketing efforts and portraying a “lifestyle” brand image. Pepsi reported strong Q4 and and 2010 results, with the full year company-wide net revenues increasing 34%. ^[1] Last year, it acquired and integrated two bottlers from which it expects synergies of more than $550 million through 2012.

While we anticipate that Pepsi’s U.S. CSD share will remain stable around 10% going forward, Trefis members expect the share to show a slight uptick towards 11% by the end of our forecast period. Since the Pepsi brand represents only 7% of PepsiCo’s stock value by our analysis, any change in Pepsi’s share will not have a material impact on its stock value.

We currently have a $67.28 price estimate for PepsiCo’s stock, in line with market price.

Strong Brand Image, Loyal Customer Base

Pepsi, along with Coke, has consistently been among the top marketing and advertising spenders globally. The sustained marketing effort has made Pepsi an everyday option for consumers, rather than just another drink. As a result, Pepsi commands instant brand recognition in most places across the globe, although it’s not always easy to ward off competition from local brands.

Pepsi’s New Initiative to Improve Sales

According to Beverage Digest, Pepsi fell behind Diet Coke in U.S. market share for the first time last year. ^[2] As part of a new initiative to revive sales of its carbonated soft drinks, Pepsi is banking on nostalgia. For its Pepsi and Mountain Dew cans, it plans to introduce designs from a few decades back, and slightly change the taste so that they more closely resemble previous versions.

Trefis Community Forecast

Trefis members forecast that Pepsi’s CSD market share in the U.S. will increase from about 10% in 2010 to roughly 11% by the end of our forecast period, compared to the flat Trefis estimate of 10% during the same period.

See our complete analysis for PepsiCo’s stock here

1. Pepsi Reports 4Q and Full Year Results [↩]
2. Diet Coke deposes Pepsi as as No.2  soda in US, Beverage Digest [↩]