PepsiCo to boost presence in China

It comes as Pepsi faces an increasingly stiff challenge from rival Coca-Cola in the soft drinks sector.

The cash injection will be the largest in the company’s 26-year history in China, and is expected to play an important role in stepping up localisation by financing the development of products tailored to Chinese consumers, the establishment of local research and development facilities, and the expansion of product distribution.

A good deal of it may also end up in marketing budgets as Pepsi seeks to expand its presence in the market. According to Joy Huang, research analyst at Euromonitor International Shanghai, Coke’s high visibility is a major issue for the brand. “Pepsi will have to concentrate on increasing its brand awareness,” she said.

Pepsi, which holds 33 per cent of the carbonated drinks market behind Coca-Cola’s 52 per cent, already appears to be expanding its focus on snack foods and has begun briefing its agencies on the promotion of new ventures. It has recently appointed roster partner BBDO to launch Harmony, a nut snack product exclusively for China.

An agency source close to the account indicated that existing snacks such as Cheetos and Lays would also be likely to receive more attention in terms of development and brand building.

But while Pepsi has a comparatively large portfolio of food products, it lags behind Coca-Cola in the non-carbonated drinks sector. As Shaun Rein, chief executive of research firm CMR Group, points out, Pepsi’s beverage portfolio has until recently consisted almost entirely of soda brands. The launch of Gatorade, Tropicana and H2O in China has been overshadowed by Coca-Cola’s planned takeover of Huiyuan Juice Group and its establishment of an $80 million global innovation centre in Shanghai. This is a concern in a country where Euromonitor predicts gradual decline of carbonates due to increasingly health-conscious drinkers.

According to Euromonitor statistics, Coca-Cola is ranked first in the overall soft drinks market with a volume share of 16 per cent, while Pepsi, with seven per cent, is listed fourth.

However, Pepsi performs well among young consumers, for whom health concerns remain less of an issue. “Pepsi has been very successful in winning over youth markets in top-tier cities and has been a pioneer in using the internet to build its brand,” said Jim Sailor, MD of TNS Greater China, adding that further innovation would be necessary to sustain the momentum.

Rein argues that packaging will play a critical role in Pepsi’s growth in China over the coming investment period, along with point-of-sale and digital strategies, particularly if it is to infiltrate fourth-, fifth- and sixth-tier cities, where Coca-Cola also has yet to establish a strong presence.

“It may not be the sexiest form of advertising, but in-store displays are extremely useful in triggering purchases,” he said. “Pepsi is going to have to work out how to sell in mom-and-pop stores.”

Agencies can also expect some of the extra money to be spent on digital development. While Pepsi’s online campaigns, such as its collaboration with Taiwanese pop star Jay Chou, have been successful, one source notes that the company lacks a long-term online strategy, instead partnering with portals such as Sohu and QQ on a short-term basis. “Pepsi is lacking cohesion,” said the source, who added that the internet could be used to aid the overarching Pepsi brand and build awareness of its portfolio.

However, the road ahead will not be an easy one, with a number of domestic brands, such as Tingyi and Yangshengtang, also vying for a slice of the pie.
“Local competition is a real and growing challenge,” said Sailor. “This isn’t just a Pepsi versus Coke market. There are hundreds of local competitors that need to be understood and played against.”