In the Wall Street Journal article “PepsiCo Cuts Work Force, Posts Rise in Profit,” author Paul Ziobro describes Pepsi’s current strategy to cut a 3% of its global workforce (8,700 employees) to fund a $600 million U.S. marketing campaign. The company’s beverage segment has taken a backseat to rival Coca-Cola, but believes more marketing in the U.S. will make them more competitive. Let's take a look at some of the numbers:
- 2011 EPS dropped 5%
- Employee cuts just part of a "productivity plan" to save $500 million this year and decrease capital expenditures by 10% from last year
- Pepsi-Cola fell to the #3 drink in U.S. behind Coca-Cola and Diet Coke
- Will increase dividend payments 4% in June
- Operating Margin fell 1.2% to 11.1%
The American beverage giant does need to refocus its marketing efforts, but the campaign should be funded in a different way. The idea of increasing dividend payouts by as much as 4% is risky, but it's a better way to gain short-term capital than firing massive amounts of employees. Until recently, Pepsi’s current CEO, Indra Nooyi, has placed emphasis on the more healthy segments of PepsiCo like Quaker, Gatorade, and Tropicana (most of which aren't even that good for you). Now the company's moving in the right direction. The soda industry is all about brand loyalty. Clearly, consumers are currently more loyal to Coke products, which makes selling Pepsi products twice as hard. PepsiCo's decision to boost marketing is good because that's really the only way to gain consumer loyalty without creating an entirely new product. Brand loyalty is all about making a product available, making a product better than alternatives, and keeping the product image fresh in consumers' minds. Pepsi's sales will grow in 2012, and if they can secure brand loyalty they will continue to grow after this year.
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