Carbonated soft drinks, as a category, is getting accustomed to change. Consumers were already buying less sugary soda when COVID-19 hit, and second-quarter earnings reports from Coca-Cola and PepsiCo show the two iconic brands must make big modifications to what was seen as an impervious business.
Coca-Cola CEO James Quincey set the tone even before his company reported big second-quarter problems on Tuesday (July 21). Coke saw earnings drop 33 percent, as revenues saw their largest decline in 25 years.
“The economic impact of the lockdown is just starting to begin,” Quincey told CNBC in May. “[Coming] after this virus crisis will be the economic impact and hangover of the lockdown, and there will be a much greater focus from the consumer on affordability or getting the prices lower.”
PepsiCo also reported weak second-quarter earnings earlier this month, with soft beverage sales only partly offset by strong food sales. Unlike Coca-Cola, PepsiCo is far more diversified, owning Quaker Oats Company and Frito-Lay – which have performed well during the COVID-19 lockdowns and left the company less exposed to soda’s big fizzle.
PepsiCo Chairman and CEO Ramon Laguarta said in announcing the company’s second-quarter results that “despite being faced with significant challenges and complexities as a result of the COVID-19 pandemic, our businesses performed relatively well during the quarter, with a notable level of resiliency in our global snacks and foods business.”
But citing continued volatility and uncertainty, Laguarta added that company officials “are not providing a financial outlook for fiscal year 2020 at this time. However, we continue to believe we have ample liquidity and flexibility to meet the needs of our business and return cash to shareholders. We remain focused on winning in the marketplace with our strong portfolio of brands in attractive categories, agile supply chain and flexible go-to-market systems, while also building on our competitive advantages, to emerge an even stronger company in the future.”
Putting Some Pop Into the Recovery
The two beverage titans had already been busy over the past several quarters developing new concepts and partnerships to offset soft drinks’ long, slow slide in favor of healthier options. But now, they must correct for COVID as well.
Coke’s new Pour By Phone mobile app leverages the demand for touchless options in quick-service restaurants (QSRs) and casual dining establishments using resurgent QR codes. Coke also debuted its touchless Freestyle system with Bluetooth connectivity in restaurants in 2019.
“The software will be available at more than 10,000 Coca-Cola Freestyle dispensers this summer. All Freestyle dispensers will be contactless-compatible by the end of the year,” PYMNTS reported at the time. “Research shows that 60 percent of restaurant guests would choose to pour their own fountain drinks versus having an employee do it for them.”
The carbonated colossus also introduced a new monthly subscription service in February called The Insiders Club that promises Coke swag and new flavors partly in a bid to have recurring revenues make up for traditional soft drinks’ ongoing slide.
As for PepsiCo, the company leveraged its relative strength in the snacks category to launch two direct-to-consumer (DTC) websites – PantryShop.com and Snacks.com — at the height of the lockdown. The sites offer bundles of Frito-Lay and other PepsiCo food products via home delivery. PantryShop.com focuses on brands like Quaker and Tropicana, while Snacks.com specializes in Frito-Lay snacks and related items.
"In these uncertain times, as more and more consumers are using eCommerce channels to purchase food and beverage products, PantryShop.com and Snacks.com offer shoppers another alternative for easy and fast access to products they love,” Gibu Thomas, PepsiCo’s senior vice president and head of eCommerce, said in a statement announcing the new sites.
PepsiCo also announced a deal in February to buy the Rockstar Energy drink brand for $3.85 billion, expanding its portfolio further away from sweetened drinks into lifestyle niches. And last year, the company rolled out its PepCoin cash-back loyalty rewards program.
Long Road To Recovery?
But despite such initiatives, Coca-Cola and PepsiCo could be in for a long slog to make up for COVID-related losses. After all, they derive roughly half of their sales from businesses outside of the home – bars, restaurants, stadiums and other places that have been mostly shut down by the coronavirus.
With people like Lollapalooza Co-founder Marc Geiger predicting that concerts and sporting events might not return to America until 2022, the two soft drink giants definitely have their work cut out for them.