Can Pepsi Make a Comeback?

0:00Hey, it's Kate, here to say that my colleague, Alison Poli, has stepped in to guest host today's episode. Enjoy.

0:11You don't want me to open my Pepsi on here? I can do it. You want to hear it? Wait, yes. Oh my God, it's exploding.

0:22I'm covered in Pepsi over here. Oh my God. I recently sat down with my colleague, Laura Cooper, who covers Soda Pop. So, importantly, do you say soda or pop? Soda. I'm from New York. It's all soda to me. I say pop. Where are you from? I'm from Cleveland. I was a big pop drinker growing up. If you're from the Midwest, I'm going to assume probably Pepsi. Yeah, there are a lot of Pepsi products and placements in the Midwest for sure.

1:01Pepsi wasn't just a part of my life growing up. There was a time when those classic blue cans were embedded in the American zeitgeist. When would you say Pepsi was at its coolest? I mean, I look back and think that they were the coolest when Britney Spears was selling it back in the early 2000s.

1:25But today, the magic of Pepsi seems to have fizzled. Pepsi, which has almost always been the number two cola in America after Coke, dropped to number three behind Dr. Pepper last year. And now, PepsiCo is reckoning with the fact that Pepsi might not be as cool anymore. I do think it's an inflection point, and I do think that it's a really emotional issue for everyone who's ever worked at PepsiCo and really loves Pepsi. So PepsiCo needs to save Pepsi. Yes. And they're working on it. Welcome to The Journal, our show about money, business, and power. I'm Alison Poley. It's Friday, April 11th.

2:19Coming up on the show, Pepsi lost its way. Can it get back on track?

2:40When we think of the soda world, or pop world, as I would say, who are the two main competitors? Of course, Coca-Cola and Pepsi, right? If you were to walk into any fast food restaurant, you'll either see Pepsi or Coke. Right. And you'll see Pepsi or Coke with Dr. Pepper, because Dr. Pepper is neutral and can be with either. Okay. Pepsi has a long-standing rivalry with Coke, and Coke has always been the top cola in the country. In the 1960s, PepsiCo tried to kick Coca-Cola off the number one pedestal by starting up a competition that would come to be known as the Cola Wars. The company launched a new campaign it called Pepsi Generation.

3:27They were positioning Coke as being really old-fashioned, and Pepsi was the hip, cool soda for young people.

3:39And Pepsi also did the Pepsi Challenge. That's when they have consumers drink Coke and Pepsi in a blind taste test and tell them which one they like better. All across this country, people took the Pepsi Challenge, and Pepsi won. Yeah, my mom told me about the Pepsi Challenge when I was younger, and so I had her do it for me. By the 80s, Pepsi was on its way up. In 1985, Coca-Cola responded by launching a product called New Coke, which was a major flop. Meanwhile, PepsiCo was signing million-dollar collaborations with stars like Michael Jackson. A lot of that led to really cool collaborations with artists.

4:22I think everyone understood what Pepsi was going for, and they really were doubling down on hiring talent and just becoming part of culture. All this was working for PepsiCo. Pepsi's share of U.S. soda sales peaked in the late 80s and got close to unseating Coke from the number one spot. While PepsiCo was chasing Coke, the company was also looking at ways to expand its business. It wanted to be more than just a soda company. And so it acquired other brands, first snacks and then fast food. So over the years, Pepsi had already began accumulating food. They purchased Frito-Lay. They purchased a bunch of restaurants like KFC and Taco Bell and Pizza Hut.

5:14They also bought things like Quaker Oats, which owned Gatorade, which is a huge beverage. PepsiCo kept going. In the 2000s, when consumers started to become more health conscious, the company saw an opportunity. It bought a juice brand, a kombucha brand, and formed a joint venture to sell Sabra hummus. The company even added energy drinks to its offerings. So like, for instance, Rockstar Energy Drink was purchased by PepsiCo. Okay. It took a stake in Celsius, which I see people drinking as an alternative to coffee on the subway every day. Yeah. And there's also, you know, they went into creating new snack brands, things like Mini Doritos and Cheetos Mac and Cheese and all kinds of things that are different from, you know, Pepsi, for instance.

6:08But as PepsiCo was pouring resources into other products, Pepsi-Cola sales had been dipping lower and lower. And then last year... Now there's a new number two. Coca-Cola remains king, but Dr. Pepper has moved into second place just ahead of Pepsi. Pepsi is now number three. After decades of trying to win the top slot, Pepsi actually slipped even further down. And now, the company needs to do something about it.

6:43That's after the break.

6:57It wasn't just Pepsi sales that were dropping. As of last year, beverage sales across PepsiCo's U.S. business were down. With their most prestigious soda in the number three slot, the company told Laura that maybe they'd lost their focus. The man hired to turn those numbers around, for Pepsi and for all beverage sales, was Ram Krishnan, PepsiCo's new head of beverages in the U.S. Ram joined and he really had a big job to do. He's told me that his marching orders were to regain share for Gatorade and Mountain Dew and Pepsi. And he set out to do that. Here's Krishnan speaking at a conference. The consumer's expectation is every time I interact with a retailer or brand, you know me and you know me well.

7:53He's been on the road trying to talk to people, trying to look at shelves in places like 7-Eleven and really understand the consumer and where the brand is. He spends time with local sales teams. He goes and meets managers. And these are stores we all know, like Walmart or Dollar General. And the idea is, let's walk through the aisles. Let's make sure the shelves are full. Let's make sure that the PepsiCo drinks we need are highlighted the way they're supposed to be highlighted. You know, he's an extremely high-up executive, and he's traveling four days a week across the country doing this.

8:33One of the big things that came out of Krishnan's work was how the drinks got into stores. And the company did that by leaning on its food business. And PepsiCo Foods are known to have a very robust distribution strategy and, frankly, just to be very good at that. PepsiCo decided to unite their food and beverage distribution operations under the same leadership. Krishnan also wanted to bring more attention back to the company's core product, Pepsi. So he launched a new marketing campaign. So in advertising, the company has really positioned to only really market it as Pepsi goes better with food.

9:13Food deserves Pepsi. And the positioning is like, Pepsi is better than Coke or any other beverages for pairing with food. Because of a unique mix of spices, the level of carbonation, and the sweetness in Pepsi, it actually goes well with most foods. So they've had, you know, a bunch of commercials to this end of people going into major fast food restaurants and swapping out Coke drinks with Pepsi when they're eating burgers. We help people sneak Pepsi into places that don't serve it. What if they catch us? Krishnan is trying to bring Pepsi back into the mainstream by advertising on TikTok and Instagram.

9:48He's also dusted off the Pepsi challenge, this time pitting Pepsi Zero Sugar against Coca-Cola Zero Sugar. So get ready for a new Pepsi challenge in 2025, coming soon to a city near you. Krishnan says store sales of classic blue can Pepsi have started to inch up. And that's not all. He says the company has also reversed the decline in Gatorade's market share. His latest move was a deal to acquire prebiotic soda brand Poppy, which is popular among health-conscious soda drinkers and had ads at the Super Bowl this year. But soda feels like a lot of sugar right now. And these other drinks, too much buzz, no flavor.

10:31What if there were a better soda? Why did PepsiCo buy Poppy? Well, Poppy is considered to be a healthier soda, and that is important to bringing in Gen Z and a bunch of new consumers. So I would say this also just shows that PepsiCo is committed to growing its soda offerings, whatever those may be, and bringing in new consumers. But PepsiCo still has an uphill road ahead. I think that the soda category in general has some challenges ahead. I think in a time when, you know, RFK has come out and referred to sugar-recarbonated drinks as poison, that just the category as a whole is having a harder time in the Maha movement era.

11:21era. So it's just across the board for soda, it's a difficult time. And people have already, you know, started to drink things like energy drinks, like poppy and, you know, seltzer instead of soda. So like soda overall is having a tough time. But Coke has always been number one, right? So how has it stayed so successful? Coca-Cola is a pure beverage company. They do not have food. And when I spoke to their CEO, he believes that their focus on this core area of beverage helped them win. When you think about Red Can Coke also, they have continued their marketing strategy. You always will still see, especially around Christmas time, tons of - The polar bears.

12:11Yes, the polar bears. It's just like, it's kind of everywhere. Whereas Pepsi was for a while, but the marketing just shifted away. And even some of Pepsi's most stalwart champions have fallen away. Like Britney Spears. I was scrolling through Instagram and I saw she had a post and it was about how much she loved the tiny cans of Coke. So even Britney's done with Pepsi? Who knows? But I did see that and think, wow, what?

12:45Do you think this pivot will work for PepsiCo? I think that PepsiCo definitely has an opportunity here and that they are doing everything they can to regain market share. I also think buying poppy was another way that even if like blue can Pepsi can't regain its number two spot, that they will still have growth in overall carbonated soft drinks. I do think that we will have to wait and see if these pivots work, because it's not like when Michael Jackson and Britney Spears sold this to us. And I would say that, you know, I spoke to a lot of people who really love the company and are still not sure if PepsiCo can save Pepsi.

13:46That's all for today, Friday, April 11th. The Journal is a co-production of Spotify and The Wall Street Journal. Thanks to Alison Pohley for hosting today's episode. The show is made by Catherine Brewer, Pia Godkari, Rachel Humphries, Sophie Codner, Ryan Knudsen, Matt Kwong, Colin McNulty, Jessica Mendoza, Annie Minoff, Laura Morris, Enrique Perez de la Rosa, Sarah Platt, Alan Rodriguez Espinosa, Heather Rogers, Pierce Singhi, Jivaka Verma, Lisa Wang, Catherine Whalen, Tatiana Zamis, and me, Kate Leinbaugh, with help from Trina Menino. A big thank you and shout out to Alessandra Rizzo, who's been our amazing intern for the past six months.

14:33Ali, we're rooting for you and wish you the best. Thanks for everything. Our engineers are Griffin Tanner, Nathan Singapak, and Peter Leonard. Our theme music is by So Wiley. Additional music this week from Katherine Anderson, Peter Leonard, Nathan Singapok, Griffin Tanner, and Blue Dot Sessions. Fact-checking this week by Mary Mathis. Thanks for listening. See you Monday.