Pepsi turns to tough stuff to fight inflation
Vertically integrated companies across all sectors of the food and beverage (F&B) industry are finding opportunities to leverage their infrastructure to generate additional revenue as rising costs put pressure on profit margins.
F&B giant PepsiCo, for its part, has leveraged its distribution network to distribute liquor from The Boston Beer Co., parent company of Samuel Adams and Truly Hard Seltzer, among other popular liquor brands, under the subsidiary Blue Cloud Distribution, which formed the last year.
The company, which distributes Hard Mtn Dew, has liquor distribution licenses in some US states, but not others. In February, the product was available in Florida, Iowa and Tennessee.
During a call with analysts on Tuesday (July 12) to discuss PepsiCo’s second quarter 2022 results, the company’s CEO and Chairman Ramon Laguarta discussed objectives for the Blue Cloud business.
“We want to leverage our assets for distribution,” Laguarta said. “We believe that in alcohol we can bring new brands to market. We don’t want to be a distributor…many brands and a very complex set of brands…We prefer to focus on a few big consumer opportunities and the submit to what is a very powerful DSD [direct-store delivery] system.”
Indeed, a range of companies that are heavily dependent on food and beverage sales are leveraging their distribution networks and steering systems to drive the sales of other companies. Take, for example, all the restaurant and grocery aggregators offering white label solutions. DoorDash has DoorDash Drive, Uber Eats has Uber Direct, Grubhub has Grubhub Enterprise, and Instacart has Instacart Platform.
It’s not just delivery-centric companies leveraging their infrastructure as a white-label service for external brands. Mega-retailer Walmart, for its part, which makes more than half of its total sales through its grocery business, has partnered with retailers, shipping aggregators and e-commerce platforms through of its Walmart GoLocal end-to-end delivery offering.
The consumer price index for all urban consumers (CPI-U), released by the US Bureau of Labor Statistics (BLS) last month, found food prices rose 10.1% year-over-year in May. Regarding the company’s approach to inflation, PepsiCo vice president and chief financial officer Hugh Johnston noted that measures to boost productivity have been effective.
“Our first objective whenever we face inflation is to try to generate additional productivity on our internal costs, and…we have seen this year one of the strongest productivity we have seen in several years “, Johnston said. “It puts us in a relatively better position when we face commodity inflation, because we don’t necessarily have to price it end-to-end. We can take a more consumer-centric approach to dealing with inflation and the prices that go with it.