PepsiCo (PEP 0.80%) is getting a fresh start this year after a tumultuous 2012. The stock is up more than 10% year to date following the company's fourth-quarter results, which beat analysts' estimates. This is a good sign for the soda maker's future, considering just a year ago investors and analysts were pressuring Pepsi to split its snacks and beverages businesses as a result of poor performance. But what's really changed since then?
Charging ahead
For one thing, Pepsi delivered on its promise to boost marketing efforts on its core brands. This helped the company grow its net revenue by 17% during the fourth quarter -- a notable improvement over the same period a year earlier. New product offerings are also playing an important role in the company's turnaround.
Typically, with a consumer goods company such as Pepsi, growth is achieved via international expansion. While this is certainly part of Pepsi's plan, it's also growing in new product categories. In a bid to capitalize on the booming energy drink segment, Pepsi recently unveiled a new beverage named Kickstart.
Although the company insists that its new beverage isn't, in fact, an energy drink, it's being marketed as a healthier take on the pick-me-up trend. The sparkling juice beverage is flavored like Pepsi's popular Mountain Dew soda, but it also contains 5% fruit juice. For bonus points, Pepsi threw in vitamins A and C, as well as some extra caffeine. But don't call it an energy drink.
Of course, this isn't the company's first foray into the energized beverage segment. Pepsi introduced its AMP Energy drink in 2001 in hopes of increasing its share of the fast-growing market. Regrettably, the product didn't make the splash that Pepsi had hoped. As a result, the company revamped its AMP Energy blend last year by adding new flavors and targeting three key functions: Boost, Active, and Focus.
Pepsi's rebranding of its AMP Energy line was also a play to better compete with rival offerings from Coca-Cola (KO 2.14%) in the space. Coke currently owns brands such as Full Throttle, Burn, and Gladiator. Additionally, there have been rumors lately that the world's largest soda maker could scoop up Monster Beverage. But, at least for now, Coke is just a distributor for Monster.
Nevertheless, as many of these companies discovered last year, the energy drink business can be tricky.
Risky business
Similar to market leaders such as Red Bull and Monster Beverage (MNST -0.64%), AMP Energy is made with a combination of caffeine, taurine, and guarana. Unfortunately, health concerns have arisen recently over the safety of such ingredients. Last year, the Food and Drug Administration launched an investigation into the health risks of energy drinks including Pepsi's AMP Energy, 5-hour Energy, and certain Monster products.
Later in the year, the FDA released a report outlining its findings. Importantly, the organization didn't find any specific problems related to the use of taurine or guarana -- two primary ingredients in AMP Energy. However, legal scrutiny such as this prompted Monster Beverage to change the labeling on its turbocharged drinks, according to the Associated Press. The Corona, Calif.-based company reportedly said this month that its cans' labels would now include caffeine content. With increased regulation on these products, it couldn't be a better time for Pepsi to launch its new, somewhat naturally energized, concoction.
Will the new drink satisfy health advocates? It should do the trick, as Pepsi has swapped out controversial additives for fruit juice and vitamin supplements. However, the move puts Pepsi in direct competition with newcomer Starbucks (SBUX 0.17%) in the alternative beverage market.
New products render new rivals
To say that Starbucks has the morning beverage market cornered would be a gross understatement. Yet, the java giant wasn't satisfied with its dominance in the coffee segment. Last year, the world's largest coffee retailer entered the energy drink market with its product line of natural fruit juice drinks.
The so-called Starbucks Refreshers are made from a combination of real juice and green coffee extract. This means that Pepsi will need to heavily promote its new Kickstart brew if it wants the product to have a fighting chance against competitors in the space. Not to mention, there's a lot at stake for these companies, with energy beverages making up the fastest growing category in the consumer packaged goods sector.
On top of its new nontraditional energy drink, Pepsi continues to invest in product innovation within the caffeinated cola business. The company promoted its new Pepsi Next brand, which boasts 60% less sugar than regular Pepsi soda, during the Super Bowl. According to a report by The Wall Street Journal, Pepsi Next has already reached the $100 million mark in annual sales.
