In one of the latest signs of the coronavirus’ economic impact, soda giant PepsiCo PEP +0.1% reported a 15% decline in second-quarter profit on Monday, hurt by some additional $400 million in pandemic-related spending.
On the sales front, governments’ stay-at-home orders hurt PepsiCo’s global beverage sales at convenience stores, gas stations and other away-from-home premises even as consumers eating in were buying more Frito-Lay snacks and Quaker Foods items.
The Purchase, New York-based company, like many others, isn’t giving a financial outlook as the U.S. grapples with spikes in Covid-19 cases in some states. To keep costs in check, PepsiCo said it would reduce non-essential advertising and marketing. It’s also simplifying its product portfolio to focus on better-performing items, part of a growing industrywide trend.
Amid the uncertainty, expect these trends to have staying power:
CPG companies doubling down on e-commerce: Since March 1, stay-at-home U.S. consumers have spent even more online than they did during the holiday season in November and December, Adobe ADBE -1.6% reported on Monday.
It’s no surprise that increased online grocery orders have played a key part.
“Whoever wins in e-commerce now and is able to capture those families that are trying this e-grocery service for the first time is going to win those families in the future,” PepsiCo CEO Ramon Laguarta said on the company’s call Monday. “We’re investing heavily in trying to be the first in that channel. … E-commerce is a key area where we think we can gain market share.”
A new kind of healthy pitch in the grocery aisle: Just as many household items with antibacterial claims have been coveted by consumers during the pandemic, items that may boost your immune system may become trending.
“We’re seeing that consumers are looking for immunity more,” Laguarta said, adding that PepsiCo’s juice business is “booming.” PepsiCo, parent of brands including Tropicana juice and Naked smoothies, can “come up with other beverages and even snacks that go against that need,” he said.
Snacks becoming part of the meals: As more consumers cook and eat at home, they are including brands like Tostitos chips, Sabra dips and some Quaker products as part of their meals, Laguarta said.
“We’re going to obviously move our advertising and our consumer support in terms of giving them recipes and helping them with solutions that kind of go incentivize that habit,” he said.
Organic sales, which exclude the impact of acquisitions and other items, rose 6% at Frito-Lay North America, helped by demand for salty and savory snacks including Tostitos, Fritos and Cheetos. Quaker Foods organic revenue surged 23%, thanks to consumers eating more breakfast and dinners at home and baking more.
An opportunity for a do-it-yourself soda machine: While PepsiCo’s global beverage sales declined, with consumers going out less and many places where they traditionally consume soda shut down or closed for in-store dining, Bubly flavored seltzer water posted gains as part of the increased demand for what consumers perceive as healthier choices. That, coupled with the stay-at-home trend and an environmentally conscious pitch against single-use plastic bottles, means a potential growth opportunity for PepsiCo’s $3.2 billion purchase in 2018: sparkling water maker SodaStream.
“SodaStream is a beautiful business for this situation we’re living today,” Laguarta said, adding that the company is investing “substantial amounts.” “Consumers don’t have to leave their houses. They have perfect choices. We’re putting our Pepsi brands in the SodaStream model in Europe, and it’s working very well.”