In the cut throat market PepsiCo is struggling to be leader, significant sacrifices are in order. To ensure brand visibility, players go to all sort of extents, but when profits are just not enough to boost marketing strategies, cost reduction programs become essential. PepsiCo has a similar strategy in mind, as it plans to cut jobs to boost marketing expenses.
Part of CEO Indra Nooyi’s strategy to reinvigorate Pepsi’s beverage business in the United States, the company announced plans to cut 8,700 jobs and boost marketing expenses for its brands. Coupled with other measures, the layoffs are expected to save the company about $1.5 billion in the next two years.
Marketing expenses will increase by $500 million to $600 million and, as the company stated, are expected to bring back the high single digit core earnings growth. In its latest quarter, Pepsi reported a profit of $1.42 billion, or 89 cents a share, up from $1.37 billion, or 85 a share, a year earlier. Core earnings, which exclude items such as merger charges and mark-to-market losses or gains, rose to $1.15 a share from $1.05. Revenue rose 11 percent to $20.16 billion as worldwide volume increased 7 percent.
The marketing strategy will focus on 12 PepsiCo brands, including Pepsi-Cola, Lay’s, Gatorade, Tropicana, 7-UP and Doritos, all to the extent to regain market share from Coca-Cola Co. According to the company, the measure will deliver results starting the second half of this year.
Although not everybody agreed with her decisions, Nooyi said in an interview on Bloomberg Television: “Running a large company is like doing a car race. Occasionally, you have to stop and refuel yourself in the pit stop, and that is what we’re going in 2012”.
Ali Dibadj, analyst at Sanford Bernstein & Co., said that the “cost savings projections are encouraging, although 2012 will be a negative EPS growth year, which isn’t what investors like to hear typically”.
Jim Tierney, chief investment officer at W.P. Stewart, said that “more ad spending is a positive and costs cuts are encouraging”, so at least the company is doing something to boost market ranking and recover from currency rates.