PepsiCo. (PEP) has shown a proclivity to pivot with consumer trends and the battle for sparkling water seems to be no different.
In recent years, former CEO Indra Nooyi touted healthier products for the business as a key driver, particularly in snacks. Yet, that focus has led to some difficulty in North American beverages.
"North American Beverages has faced a number of challenges over the past 18 months," CEO Ramon Laguarta acknowledged on Friday morning after the company reported fourth quarter 2018 earnings. "New entrants have come to market in some of our strong hold categories, there are opportunities to improve some of our brand marketing and consumer engagement, and there are areas where we can step-up our local marketplace execution."
In 2017, for example, the sugary soda-driven segment saw three straight quarters of deceleration.
One notable "new" entrant that made waves during that span was La Croix-maker National Beverage Corporation (FIZZ) which saw its stock rise almost 100% in 2017.
Laguarta addressed this headlong, noting increased investment in North American beverages and sparkling water in particular.
"We've increased our innovation to address new category entrants and to drive success in higher-growth segments with innovations like Life Water, Bubly, Gatorade Zero, new variants of Propel and extensions within our successful Starbucks and Pure Leaf Tea," he told analysts on Friday. "We're making changes to our NAB organization structure and adding frontline resources to make us more agile in responding to local commercial opportunities and local competitive actions."
Bubly is being touted as the key offering to tangle with La Croix's surging popularity and capitalize on claims that the competing product is not "all natural" as it claims.
"I think we were made for the flavored sparkling water category," former PepsiCo CEO Indra Nooyi said in a call one year ago, adding interest to the effort in a growing market.
However, it is not only Bubly, but also the buyout of Israeli in-home soda-maker SodaStream that could aid in attacking this category.
The move to purchase SodaStream shortly before her exit seems a shrewd one based upon market forecasts, especially as the trend in sugary sodas has been on a largely consistent downward trend and is eaten into by low calorie soda and zero calorie seltzer sales.
The success of La Croix in establishing sparkling water the millennial market also indicates that the drive into sugar-free, carbonated water with SodaStream is a strong thesis for Laguarta's planned investments in catching younger consumers.
The focus of younger demographics on sustainability also aids this push.
According to a Glass Packaging Institute report, 75% of millennials "actively look for changes they can make in their home and lifestyle to be greener," indicating that ditching wasteful plastic packaging for sodas could be an important movement in the industry.
If these investments pay off, Pepsi should be able to count on that appeal as a significant driver of success.
For a taste test of the sparkling water offerings available today, check out the video above.
