In this segment from Market Foolery, Chris Hill and the rest of the cast ponder the implications of a major sugar reduction in the beverage portfolio at PepsiCo (NASDAQ:PEP) and the multiple reasons it looks like a smart business decision.
The soft drink segment has been declining gradually for years as consumers seek out healthier refreshments, but is it possible for the company to actually rebrand itself as a purveyor of -- at the very least -- less unhealthy choices?
A full transcript follows the video.
This podcast was recorded on Oct. 17, 2016
Chris Hill: Pepsi making headlines today with the announcement that it is cutting back on sugar. They seem pretty serious about this. Right now about less than 40% of Pepsi's drinks in their portfolio have one hundred calories or fewer. The company says that by 2025 that number's going to get up to at least 67%. At least two-thirds of their beverages are going to have a hundred calories or fewer. This, I don't know, this seems like one of those moves that seems like smart business and also smart PR.
Jason Moser: Yeah, I think so on both counts. I think that this is a very forward-looking decision, because as of now, soft drinks are still fairly popular and doing fairly well. But, the trend is very clear and people are opting more and more for things like waters and teas and things like that. What's really impressive with this is that when you look -- there was a video linked to this announcement, I think, somewhere. It compared ... so, I think the adult is supposed to take in something like six teaspoons of sugar a day, or something like that was the recommendation. When you look at all the drinks out there and how much more than six teaspoons any of these drinks have. You go to Starbucks and get one of those hot chocolates, you're like tripling it. Just orange juice, something as simple as that. So, yeah it does seem like that's a lot of empty calories, a lot of unneeded sugar.
They're realizing the health implications. So, like with anything else, you're seeing cities adopt higher taxes on sugary beverages like that. That's going to help sort of dictate some behavior. You can see it works to a degree with smoking, so with sugar it will probably have the same way. As someone who's trying to monitor his sugar as well, I'm steering away from the Diet Cokes and Cokes and things, and looking more for like waters and teas. See my kids, they're just not drinking Coke and stuff like that really, anymore. So, I applaud it, I think it's the right move. I think it's a very forward-looking move, and I think the companies that try to capitalize on this sooner rather than later are going to be happy that they did.
Taylor Muckerman: Well, right now you look at sugar prices up over near 100% year over year, so it might be a good short-term decision as well.
Hill: I was going to say, one more reason it might be a good business decision.
Muckerman: Yeah, yeah. So, that and people expect it might continue to rise or at least moderate, but still it'll moderate at a higher price than it usually is at historically. I'm just hoping they start with Gatorade because before I knew how bad sugar can really be for you I used to drink Gatorade all the time, but it's been several years so I'd like to start drinking Gatorade again.
Hill: I think we talked recently on Motley Fool Money about Pepsi's ... maybe it was like their latest result. We say all the time keep in mind it's a snack company, they own Frito Lay, it's a snack company. It's really half and half.
Muckerman: It is.
Hill: Half of their revenue last year came from beverages, so this is as you said, pretty forward-looking.
Moser: The bottom line is it's not going to affect that salty snack business. This is something that plays into the beverage side of the business, but the salty snacks will still be there. Thankfully.
Moser: That's where I've been a little bit less successful in trying to curve my behavior, but you know, one step at a time.
Chris Hill owns shares of Starbucks. Jason Moser owns shares of Starbucks. Taylor Muckerman owns shares of Starbucks. The Motley Fool owns shares of and recommends PepsiCo and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.