PepsiCo's chairman and CEO Ramon Laguarta said during a recent earnings call that it has become "a bit more selective" about the type of advertising and marketing that it is doing. According to him, it is stopping activities with lower return on investment (ROI) and putting more money against the initiatives that had more ROI.
The reduction in non-essential advertising and marketing spend comes as the company aims to mitigate challenges posed by the COVID-19 pandemic, such as disruptions due to retail closures and higher labour, personal protective equipment, logistics and service costs.
Laguarta said that advertising is a key component of its strategy.
"We still think that it is critical that we continue to use that lever to drive penetration of the brands and trial. There has been a bit of an adjustment, especially in some markets early on in the quarter because the truth is that the consumer habits change a lot, and we modify some of the advertising and marketing decisions," he added.
He explained that "sometimes a crisis helps" to be more selective and to be more impactful and to generate internal momentum against simplification, and against focus - against fewer and bigger. For the remainder of 2020, Laguarta said
PepsiCo will continue to invest in advertising and marketing as it sees consumers moving around and demand for its products start to increase.
"Obviously, balance of the year, we continue to invest as we see the consumers moving around and demand for our products starting to be a bit higher. We'll keep investing and, again, not trying to lose that focus on fewer and bigger and trying to minimize the lower ROI initiatives that sometimes we have in what is a very large business," he said.
As it relates to becoming stronger, Laguarta said PepsiCo is putting an even greater emphasis on our businesses to have a zero-based spending mindset in which it must earn its budgets. In doing so, it continually identifies savings and use them to fund new investments; prioritising critical initiatives that will transform the operating capabilities of the company for the future. According to him, these initiatives include accelerating the digital transformation of the company. He added that the company is also reevaluating and stress testing other less critical investments, always seeking to optimise the investment portfolio for higher returns. In the previous quarter, Laguarta said that the company slashed non-essential ad spend and tightly managing discretionary expenses to reflect the realities of the current environment.
Meanwhile, vice chairman and CFO Hugh Johnston also said during the call that part of being stronger has been building up its in-housing capability for advertising and marketing, which has benefited PepsiCo. "One, it improves our speed; and number two, it has proven to be more efficient over time. So we can actually get same or more value for less money, which is obviously a terrific outcome for the company," Johnston explained.
PepsiCo saw a 3.1% dip in net revenue to US$15.9 billion during the second quarter of 2020 (Q2 2020). Its gross profit dipped from US$9.04 billion during the same period last year to US$8.85 billion this year. Its Asia Pacific, Australia and New Zealand and China region amassed a net revenue of US$763 million, an increase from US$694 million last year. Meanwhile, operating profit for this region also jumped from US$116 million in Q2 2019 to US$189 million this year.
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