News Analysis: Pepsi plays to adult audience

The cola underdog hopes to entice a fresh demographic with the launch of its premium Raw drink.

Coca-Cola may be the dominant player in the cola market, but when it comes to setting trends, PepsiCo seems to have the edge.

The soft-drinks company is soon to launch its first variant for more than 10 years, a premium cola called Pepsi Raw, with the intention that it will create a similar shift to the one effected by sugar-free Pepsi Max when it debuted in the UK 14 years ago. A spokeswoman for PepsiCo highlights its impact. 'In launching Pepsi Max, Pepsi was ahead of the curve and it took Coca-Cola 10 years to launch Coke Zero in order to compete,' she says.

While Pepsi was turning Pepsi Max into the most successful cola brand in its portfolio, Coca-Cola focused on launching flavoured variants including vanilla, cherry and coffee. Coke Zero, launched in July last year, was hailed as the most significant addition to its brand portfolio since that of Diet Coke in 1984, but so far, it has disappointed; its market share at the end of September was just 5.3% compared with 7.9% for Pepsi Max, according to Nielsen.

Meanwhile, some have questioned the strategy behind the launch in October of the vitamin-enriched Diet Coke Plus. 'If consumers want to be healthy, they are not going to drink cola,' points out David Goudge, managing director of the Brand Development Business.

Premium pull

Brand experts believe that Raw's premium positioning is sensible in a market that is steadily declining in volume terms. TNS Worldpanel data shows that cola volumes have fallen 2.3% over the past year, but values have risen by 0.1%. Last year volumes fell by 1.7% and values rose by 7.2% compared with 2005.

'Launching a premium product is a good way to try to boost Pepsi's values again,' says David Jago, a director at Mintel. Launching Raw into the on-trade, including the All Bar One chain, is consistent with this aim.

'Affluent young drinkers are a key target audience for this sort of drink,' says Goudge. 'At the moment, a typical drink ordered at the bar is a rum and Coke, and if there is no Coke, the barman will ask apologetically if Pepsi is OK. But you can imagine the "rum and Raw" order really taking off.'

Premium prices can be hidden - or are even expected - in bars and pubs, he says, adding that Pepsi UK bottler and distributor Britvic's strong relationship with the on-trade will help significantly with the introduction of bottles or small-format cans that are more in keeping with a premium positioning than a hose font on the bar.

If this influential group of young people embraces Pepsi Raw, perhaps encouraged by a clever viral marketing campaign, its appeal could spread rapidly through word-of-mouth, allowing Pepsi UK to secure supermarket listings by the end of next year. And if the brand is successful in the UK, it will be rolled out internationally.

Nevertheless, says Goudge, Pepsi UK will have 'a hell of a job' persuading consumers to drink premium cola, pointing out that when people trade up they tend to do so to products that are either more authentic or have positive or functional health benefits. Pure juice is one example, and Pepsi UK's parent company PepsiCo has been compared favourably with Coca-Cola for its early diversification into brands such as Tropicana, PJ's and Aqualibra water that meet the needs of consumers who are growing more health-conscious.

One of the reasons that PepsiCo has not launched a premium cola earlier is that it has been concentrating on adapting its drinks portfolio to changing consumer needs. But, as Goudge points out, 'Cola is too big a market to walk away from, and it needs to be managed effectively.'

Handled well, the launch could inject some 'cool' into the megabrand. But the risk is that consumers will not engage with Raw. Promotional activity will therefore be critical to its success.

Natural focus

Pepsi Raw is justifying its premium positioning and price by its 'more natural' ingredients, though this will be very much a secondary proposition, claims the Pepsi UK spokesperson. This, too, is the right strategy, believes Jago, warning of the dangers of using an overtly healthy message for a product that is inherently unhealthy.

The company has been somewhat coy about exactly what the 'more natural ingredients' are, but the most significant is likely to be cane sugar. It is less processed than high-fructose corn syrup, the low-cost sweetener typically used in carbonates which has come under fire, particularly in the US, for its association with obesity. If the cane-sugar element is successful, Jago suggests that PepsiCo could adopt it across the rest of its portfolio.

Corporate Edge chairman Chris Wood believes that PepsiCo's strategic ambition with Pepsi Raw is to attract a fresh demographic of consumption - the adult soft-drinks market. As he says, cola is a mature market and it needs to segment in order to grow.

However, he sounds a warning. 'A successful adult soft drink has been a popular goal of marketing for decades - the mixed fortunes of brands such as Appletise, Aqualibra and Purdey's demonstrate just how difficult the quest is.'

If Pepsi Raw is successful in capturing the popular imagination, it could be 'a game changer,' says Goudge. But Edward Garner, communications director at TNS Worldpanel is less than confident of this happening.

While some are surprised at the subtle nature of the Raw launch - a stark contrast to the launch of Pepsi Max - the approach is a clever one demonstrating a clear understanding of the risks inherent in the company's latest brand.

DATA FILE
UK COLA AND SOFT-DRINKS MARKET
2007 % chg 2006 % chg 2005
Value (£000s) 06-07 05-06
Colas 655,791 0.1 566,133 7.2 610,880
Total soft drinks 3,471,576 2.2 3,395,526 9.1 3,110,900
Volume (000 ltrs)
Colas 1,063,013 -2.3 1,088,061 -1.7 1,106,508
Total soft drinks 5,247,553 -3.2 5,423,019 1.9 5,320,364
Source: TNS Worldpanel.

TIMELINE
PEPSI
1982: Michael Jackson appointed as first Pepsi spokesman
1993: Launch of Pepsi Max, a low-calorie, sugar-free cola
1994: Launch of limited-edition Pepsi Tropical and Strawberry
1997: The Spice Girls feature in their first Pepsi ad
1999: Britney Spears becomes a spokeswoman for Pepsi
2002: Launch of Pepsi Twist, lemon-flavoured cola
2003: Pepsi ties up FA partnership to help support rising soccer stars
2005: Pepsi Max Twist launched
2005: Beyonce Knowles becomes a spokeswoman for Pepsi
Christmas 2005: Launch of seasonal Pepsi Max Punch
2006: Launch of Pepsi Max Coffee Cino, a coffee-flavoured cola
2007: Launch of Pepsi Choreography packaging comprising 35 different can
designs
2007: Pepsi Max Black Eyed Peas ad

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