Yesterday, the Wall Street Journal ran an interesting set of articles about recent changes at Pepsi. The articles question whether PepsiCo CEO Indra Nooyi's attention on new growth opportunities, particularly in healthier foods and beverages, may have damaged the core business. According to the Wall Street Journal, U.S. sales of Pepsi and Diet Pepsi fell by 4.8% and 5.2% last year, while Coke's comparable brands lost only 0.5% and 1.0% share respectively. Moreover, Diet Coke passed Pepsi as the #2 soft drink brand in America. The article points out that Nooyi scaled back advertising on the core Pepsi brand fairly significantly over the past few years, and it suggests that this move may have affected market share. Here's one excerpt from the article:
Jim Tierney, chief investment officer at W.P. Stewart, says PepsiCo focused too much on redesigning Pepsi's logo and the Refresh Project instead of spending money on more traditional advertising.
"You just can't go dark on brands and expect them to hold their value,'' said Mr. Tierney, who is a bigger fan of the company's snack business.
One can certainly debate the reasons for Pepsi's market share declines. Changes in packaging and other moves certainly also had an effect. In one of the articles, Nooyi defends her actions, suggesting that she by no means has downplayed the importance of the core Pepsi brand in her strategy.
One cannot debate the broader lesson here though, even if Pepsi's issues aren't simply due to the focus on new growth areas in "good for you" brands... many companies do get themselves into trouble when they try to grow in adjacent markets. Why? The efforts to grow distract management attention and draw resources away from the slow-growing core. As a result, however, the core suffers even more than it should due to broader external trends. The key issue is that it's not simply about financial resources. Even if the core continues to get its share of money, it may not be getting the ATTENTION of key executives, and perhaps not even attracting the most talented, entrepreneurial individuals at times.