Pepsi R&D Works Overtime

Strong start to year bodes well for No. 2 beverage-maker

PURCHASE, N.Y. -- New products are a key lifeline for the packaged-beverage category, and four months into 2005, Purchase, N.Y.-based Pepsi-Cola North America has set an aggressive rollout and marketing plan for itself with new products and promotions that have beverage analysts optimistic about the company's sales this year.

The first quarter of the year saw the introduction of Aquafina FlavorSplash, Aquafina Sparkling, melon-flavored Propel Fitness Water and Dole Lights, single-serve 50% juice drinks with half the sugar of Pepsi's 100% juice Dole [image-nocss] beverages. The company also relaunched its SoBe Lean beverages and Pepsi One, which was reformulated with Splenda.

The results were respectable, noted Deutsche Bank Securities Inc., New York, as the beverage-maker reported a 1% domestic volume increase and 3% revenue per case advance. Single-serve sales increased 2.5%. But much more lies beyond the horizon, according to Smith Barney analysts.

The lineup of products and promotions still to come includes:

Pepsi Lime (Regular and Diet) will be introduced in conjunction with a Star Wars promotion that will include significant coupon activity around 2-liter packages in May. In June, the company will introduce Tropicana Twister Soda in four flavors to replace its existing Slice brand. Wild Cherry and Diet Wild Cherry Pepsi will be reformulated and the packaging redesigned by mid-year. Also by mid-year, Diet Mountain Dew is expected to get a makeover and relaunched with new advertising. This summer the company will introduce the popular Mexican soft drink Manzanita Sol in heavily Hispanic U.S. markets, including Dallas, Houston, San Antonio and Chicago.

[Pepsi] was able to overcome higher gas prices in 2004, and we think this is primarily due to its strong innovation calendar, said analyst Bonnie Herzog of Smith Barney, New York. We think [Pepsi] will continue to benefit from strong innovation throughout the rest of 2005.

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