Business First Look

PepsiCo finds life after soda with 'guilt-free' products

The company’s fourth-quarter earnings beat estimates with a total of $19.5 billion in sales – a 5-percent increase in the period. But 45 percent of the net revenue came from its low-calorie beverages and low-salt snacks.

A Pepsi truck delivers products to vendors at the Illinois State Fair in Springfield, Ill., Aug. 18, 2016. PepsiCo Inc. (PEP) on Wednesday, Feb. 15, 2017, reported fourth-quarter profit of $1.4 billion.
Seth Perlman/AP/File | Caption

As the American public becomes more conscious of the amount of sugar in soda and other sweetened beverages, Pepsi has geared up to face the new reality.

The company’s fourth-quarter earnings beat estimates with a total of $19.5 billion in sales – a 5-percent increase in the period. But notably, 45 percent of the net revenue came from its low-calorie beverages and low-salt snacks. And the company, the largest food and beverage business in the country, is banking much of its future on that trend continuing.

“We concluded 2016 with another strong quarter of operating performance, capping off a successful year. We met or exceeded every financial goal we set for 2016, while delivering a good balance between revenue performance and productivity,” Pepsi chief executive officer Indra Nooyi said in a statement following the quarterly report. “Looking ahead to 2017, we expect solid financial performance despite anticipated continued macroeconomic challenges.”

The so-called “guilt-free” products, which Pepsi named as the “everyday nutrition” category, includes beverages with fewer than 70 calories per 12 ounces, such as water and unsweetened tea, and snacks with reduced amounts of salt and saturated fat. These kinds of drinks and snacks now account for 25 percent of sales, as its famous carbonated soft drink Pepsi-Cola has become “a smaller part of the mix,” chief financial officer Hugh Johnston told Bloomberg.

Amid a wave of declining soda consumption, which fell to a three-decade low in 2015, the new quarterly report gives some hope for the New York-based soda giant, who is betting its future on the current nutrition kick. As the Christian Science Monitor reported last April:

Soda's decline stems in large part from increased public awareness about obesity, in which experts contend sugary drinks have played a large part. In response, Coke and Pepsi have made concessions, such as introducing smaller beverage containers as an alternative to full-size soda bottles and no longer marketing soda directly to children.

In an effort to further capitalize on the public's growing appetite for "guilt-free" snack, Pepsi in December 2015 introduced a new line of vending machines that sells juices and hummus, called “Hello Goodness.”

"For years, PepsiCo has been transforming its portfolio to offer more and better food and beverages,” Kirk Tanner, chief operating officer of Pepsi, said in a statement at the time.

While the current focus on low-sugar, low-fat, and low-salt products is a departure from what many consumers associated the Pepsi brand with, it is another iteration of the company flexing with current consumer trends. In 1982, for instance, “at a time of heightened consumer concern over caffeinated drinks,” Pepsi introduced a decaffeinated drink advertised as having no trade-off taste, “Pepsi Free,” targeting female consumers, the Monitor reported at that time.

The company is hoping that its latest strategy will help maintain relevance in a changing consumer marketplace.

"We are confident we have the right plans in place, are executing well against those plans, and have set appropriate targets for 2017," the company told TheStreet on Wednesday.