PepsiCo Steps up Ad Spending, Geared for Growth

by Trefis Team
-3.39%
Downside
94.46
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91.26
Trefis
PEP
PepsiCo
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While most companies are yet to get over the new year’s hangover, PepsiCo (NYSE:PEP) has signed multiple agreements aimed primarily at marketing and increasing presence domestically and internationally. Increased availability and maintaining ubiquity is a natural form of advertising as consumers subconsciously tend to prefer the brand they associate themselves with. The company plans to spend more than $400 million on marketing alone this year. PepsiCo competes with leading food & beverage companies around the world including Kraft Foods (NYSE:KFT), Coca Cola Co (NYSE:KO) and Dr Pepper Snapple (NYSE:DPS).

See our complete analysis of PepsiCo

Super Bowl!

If you thought last year’s commercial slot rates, which stood at $3 million for 30 seconds, were insane then this year’s slot rates will sound crazier. The commercials have been officially sold for a whopping $3.5 million for 30 seconds. PepsiCo will feature 2 commercials for its namesake brand Pepsi, which will also feature the winner of the season’s THE X FACTOR. [1]

Indeed Pepsi sales had been flagging and Diet Coke overtook Pepsi for the first time last year. As per our estimates, Pepsi now contributes only 6.5% to the overall stock price. Pepsi’s market share in the U.S. Carbonated Soda Drinks (CSD) has been declining and we expect a further decline, albeit, gradually.

PepsiCo has been one of the most iconic advertisers during Super Bowl and has earned the #1 spot six times. In 2010, when it did not feature in the Super Bowl, Pepsi’s market share in the U.S. CSD dropped significantly. The move highlights just how important Super Bowl is to Pepsi.

Tea Selling at a Brisk Rate

PepsiCo has tied up with the upcoming movie ‘Star Wars: Episode I — The Phantom Menace 3D’ to promote its Brisk iced tea and juice drinks. The company bottles and markets Brisk, a Lipton Ready-To-Drink (RTD), through a joint venture with Unilever. PepsiCo will introduce new packaging and a mobile game app featuring characters from the movie. PepsiCo has been actively using multimedia advertising and social media to promote Brisk tea. In fact, Brisk’s Facebook fans has jumped to 950,000 from 10,000 back in 2010. Brisk’s sales have more than doubled to 104 million cases from 48 million cases in 2009. Brisk also witnessed a 12% increase in dollar sales last year, outperforming the growth rates of AriZona and Snapple. [2]

PepsiCo Inks Deal with 50 Cent

PepsiCo has signed a deal with rapper 50 Cent to distribute its energy drink, called Street King Energy Shot, which was launched in September last year. For each drink sold, 50 Cent will feed one child in Africa and hence this deal will also help PepsiCo score brownie points. [3]

The company’s association with a good deed will not only gain popularity in the U.S. but also in Africa, where 50 Cent enjoys huge popularity. Bottling and distribution is a profitable business since the arduous task of setting up the infrastructure and distribution network is already done and adding incremental customers incurs a minimal expense.

We maintain a price estimate of $71, which is about 7% above the current market price.

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Notes:
  1. Super Bowl Ads Sell Out, and 30 Seconds Cost…, newser.com, Jan 3, 2012 []
  2. To Promote Brisk Tea, Pepsi Enlists Yoda, NYtimes.com, Jan 2, 2012 []
  3. 50 Cent Partners With Pepsi For Charitable Energy Drink, myspace.com, Jan 3, 2012 []
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