PepsiCo's CEO explains why it's shying away from hard seltzer even as Coca-Cola moves into booze

  • PepsiCo is focused "100%" on its strategy in energy drinks, CEO Ramon Laguarta said on the company's earnings call Thursday in response to a question about whether it would follow Coca-Cola into hard seltzer.
  • Laguarta indicated that hard seltzer is one of "a lot of opportunities in front of us," and that energy drinks offer more long-term potential while hard seltzer could be a shorter-lived trend.
  • The comments show how PepsiCo and rival Coca-Cola are taking different paths during the pandemic, capitalizing on two distinct categories that have both been in-demand.
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Pepsi and Coke spent years fighting each other over cola. Lately, though, the two have been taking different paths when it comes to selling beverages to pandemic-weary consumers.

Coca-Cola jumped into hard seltzer on Tuesday, announcing a partnership with Molson Coors that will bring an alcoholic version of its Topo Chico hard seltzer to the US in 2021. But PepsiCo doesn't have any plans to follow suit, CEO Ramon Laguarta said Thursday during an earnings call.

Instead, PepsiCo is devoting its "100% focus" to its plan for energy drinks, he said in response when an analyst asked him whether PepsiCo would also break into hard seltzer.

Laguarta pointed to PepsiCo's work on energy drinks, including its acquisition of Rockstar, a distribution agreement with Bang Energy, both of which it announced earlier this year and is still integrating into its business. Those, along with its Mountain Dew- and Starbucks-branded beverages, are a top emerging category for the company, he said.

"Those four big pillars, that's taking a lot of our focus, and that's going to be our priority, especially in 2021," he said.

PepsiCo's focus on energy drinks during the pandemic marks a different path from Coca-Cola, though both categories have been growing steadily during the pandemic. 

Sales of energy drinks at PepsiCo grew at a "double-digit" rate during the third quarter, the company said Thursday. And while Molson and Coke have yet to launch Topo Chico hard seltzer, data from Nielsen shows that consumers have continued to buy similar drinks at retailers.

Laguarta likened hard seltzer to short-term beverage trends. "A couple of years ago, it was CBD, now it's more alcohol," Laguarta said. "So we get a lot of opportunities in front of us."

PepsiCo would also face challenges navigating the US's regulated system of alcohol distribution, Laguarta said, referring to the separation between brewers, distributors and consumer-facing sellers. Coca-Cola's Tuesday agreement relies heavily on Molson Coors's distribution network, which it already uses to sell beverages such as Miller High Life and Crispin cider.

"Given the three-tiered system, it's not obvious how you capture a lot of value," he said.

Consumers continued to buy a wide range of PepsiCo's beverages and snacks during the third quarter, pushing the company's revenue 5% higher to $18.09 billion and above the consensus estimate compiled by S&P Capital IQ.

Changes in consumers' day-to-day lives made many of those gains possible, Laguarta said. "People are embracing daily routines of exercising," he told analysts. "That helps the sports drink category and, obviously, Gatorade as a leader in that category."

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