Pepsico, Inc. (NYSE:PEP) is in the process of changing the sweetener in Diet Pepsi as part of a major re-branding effort aimed at revitalizing the company’s flagship soft drink.
Sounds Boring, Why Should I Care?
The material change to the beverage is pretty minor. In addition to its traditional sweetener, Pepsico is adding a small amount of acesulfame potassium to Diet Pepsi, which is reportedly supposed to help the soda maintain its freshness without changing its taste. The current formula is sensitive to heat and flavor breaks down over time.
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It’s unclear if the change in chemistry will lure discerning away from competing beverages or not. The change is just one facet of a broader campaign to breathe life into the soft drink, which has lost some face in recent years. Between 2007 and 2011, Pepsi fell from the number two soft drink spot to number three, replaced by The Coca-Cola Company’s (NYSE:KO) Diet Coke. Coke Classic remains number one.
Over the same period, Diet Pepsi fell from number five to number seven on the list. Backed by a re-branding campaign, stabilizing the flavor of the drink could help stabilize sales.
CHEAT SHEET Analysis: It’s All About Brand Value
According to the 2012 Interbrand report, Coca-Cola is the most valuable brand in the world, estimated to be worth over $77 billion. The value of the brand grew 8 percent last year.
The value of Pepsi’s brand grew 14 percent last year to about $16.5 billion, making it the 22nd most valuable brand in the world and the second-most valuable beverage brand. Nestle’s Nescafe brand is the third-most valuable beverage brand and worth $11 billion, followed by Sprite, which is owned by Coca-Cola and is worth $5.7 billion.
Mountain Dew, which is owned by Pepsico, sits at the number four spot for top soft drinks even though it doesn’t have a place in the top 100 valuable brands. Dr Pepper Snapple Group, Inc. (NYSE:DPS), which currently controls the number 5 slot for top soft drinks, doesn’t command a spot in the top 100 most valuable brands.
A core component of our our CHEAT SHEET investing framework explains that companies riding macro trends tend to outperform those that don’t. In this case, even though it’s the second-best player, Pepsico is competently and growing its brand. What’s more, it has managed to do this despite trends suggesting that Americans are drinking less soda.
According to The Washington Post, Pepsi will be launching a major ad campaign with a new logo featuring a heart and the theme “Love Every Sip.” Although the change in Diet Pepsi’s formula won’t be put front and center, the company’s focus on freshness will play a factor in the overall re-branding effort.
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