In the USA and Canada, there are three big top line areas of opportunity for Pepsi Bottling Group (PBG) at present. First of all, PBG starts from a position of strength, with four anchor brands that are leaders in their respective segments: Pepsi in colas, Sierra Mist and Mountain Dew in flavours, and Aquafina water in non-carbohydrates.
The second source of growth is from innovation, which brings incremental volume to the business. This has a brand dimension and a package dimension. A lot has been done to extend the cola franchise, with the addition of Pepsi Twist and Pepsi Vanilla.
Mountain Dew is a great trademark to extend. With its high brand loyalty, but low household penetration, it presents a great opportunity for growth. The additions of Mountain Dew Code Red, Live Wire and Pitch Black created a lot of momentum and PBG will continue to build on the Mountain Dew trademark.
In packaging innovation, real opportunities lie in single-serve, take-home PET and can innovation. In single-serve innovation, the development of a three-tiered approach will meet the needs of every type of user - the 14-ounce package for light use, the 20-ounce for medium use and the 1-litre package for greater consumption.
On the take-home PET side, a broad variety of multi-packs and package sizes have had great success and continue to add packaging options for both CSDs and non-carbs.
Two things that consumers value most about packaging are portability and storability, which are reflected in the success of the FridgeMate can package that expanded in 2004/05. FridgeMate's success is an area to build on, with variations on its configuration to give it appeal, not just in the supermarket and other large format accounts, but in the small format segment of the business too. The portability and storability concept can be extended to PET, with a FridgeMate for 12-ounce PET bottles.
Another area of top-line opportunity is in new growth opportunities, driven by consumers. For example, the multicultural demographic shift taking place presents new ways to go to market, particularly in urban areas.
The emphasis on health and wellness in North America is creating new opportunities. PBG's broad product portfolio already includes juices and juice drinks, energy drinks and, of course, water, ideally positioning it for this trend. PBG is always looking for ways to enter emerging beverage categories that are perceived as better for you.
Five Leadership Fundamentals
Executional leadership is one of the necessary core attributes to be a successful bottler. It is something Pepsi has nurtured since the IPO, and it has earned its spot among its bottling peers and the broad marketplace of packaged goods companies. Executional leadership has five fundamentals.
The first is executional excellence. The organisation's ability to be sure to look a leader in its accounts - with the number of ad features it gets, how much display space it occupies and how many points of availability it offers consumers. PBG has been very successful at driving continued improvement.
The second is selling excellence. It has invested a lot of time, effort and energy into building the capability and skills of its selling organisation, making sure they have the right training, tools, processes and technology to do their jobs effectively.
The third of executional leadership is marketing or brand enhancement - having the right set of brands, the right brand positioning, the right promotional campaigns and the right in-store activation through point-of-sale materials. It also involves innovation and making sure of the right consumer programmes. One point of difference for PBG has been its Power of One platform - unique marketing and merchandising programs that combine the power of the brands we sell with those of Frito-Lay.
The fourth is revenue and margin management excellence, and this has been a hallmark of PBG's success. We have been able to get 2 to 3 per cent net revenue per-case growth annually by finding opportunities to take pricing up, and applying a fairly sophisticated model on mix management.
The keys are to keep the consumer at the forefront of the decision-making process on price and value, and to understand the impact that a price/value equation has on a customers' businesses and trade margins.
The fifth, service excellence, is an area where PBG is spending more and more of its time. The customers want, and deserve, great service. They expect the company to solve their out-of-stock issues so they can maximise sales and satisfy consumers. They need PBG to call on accounts as scheduled, so they can plan labour resources.
If an issue arises, it needs to be resolved in real time. And, as retailers do more and more of their business on weekends, they need capable selling and service staff seven days a week. PBG has a lot of work underway in this area, and over the next few years will become an even better service provider than today.
On the retail front, there is a lot of consolidation going on, particularly in the supermarket sector, which is an opportunity. Because PBG is a very big, powerful company and an international provider, the scale advantage helps it better serve retailers as they continue to consolidate. By working closely with its customers, along with PCNA (Pepsi-Cola North America), PBG ensures it has dedicated resources, sales call coverage and a strong communication process to meet the needs of large retailers.
Water is the fastest-growing category in the liquid beverage industry, and it is expected to remain so for some time. PBG brings a number of distinct advantages to the marketplace that will allow it to capitalise on that growth.
Today, household penetration for bottled water is at a much lower level than carbonated soft drinks. As household penetration grows and as bottled water becomes a destination category for consumers, the demand for feature ad frequency and the display and merchandising intensity in tores will increase.
That gives DSD companies such as PBG a powerful competitive advantage. DSD benefits retail partners because they don't need to incur the costs of storing, loading and merchandising the product - it is done for them. Almost all of the category's profitability is from waters that are DSD as opposed to warehoused.
Selling and executional excellence are big advantages for PBG's water business, as it brings the feature strategy, display inventory, executional skills and space management skills to the table. Another advantage is the ability to market and promote water just like carbonated soft drinks.
Bottled water is a brandable category. As time goes on, branding will become even more important. The ability to come up with a great advertising campaign, the right brand positioning and really play up Aquafina's purity trademark will be an advantage over time.
On the pricing side of revenue management, PBG has a significant way to go before it reaches the prices consumers were paying even a decade ago. There are almost no other packaged goods categories where the consumer has seen that kind of price value over the last ten years.
A Complex Market
Complexity is here to stay, and it is largely driven by consumers. Consumers continue to seek more and more variety, and they perceive value differently across brands and packages. Great companies will respond by offering consumers more variety.
Complexity is a challenge, but it is also a great opportunity. PBG has spent, and will continue to spend, a lot of time building processes, tools and technology to simplify that complexity - for our frontline selling organisation in particular. By doing that, it has established a strong foundation to take on additional products and packages going forward. The selling organisation embraces the complexity of its product portfolio as more weapons in the selling arsenal. Growing product variety has become an advantage that can be leveraged with customers.