Pepsi: Memorable Ads, Forgettable Sales

All summer long, Pepsi-Cola was telling Americans to "Chill Out." The trouble is, they did.

Instead of rushing to buy another six-pack of Pepsi every time they heard the catchy jingle from PepsiCo Inc.'s summer promotion, consumers sat back and waited out the heat. Grocery-store sales of Pepsi's nine major soft drinks grew just 2% in the first half of 1991, according to Nielsen Marketing Research. And preliminary figures show that the sluggish growth persisted into the summer.

PRICE WAR. Pepsi's slowdown helped archrival Coca-Cola Co. build its share of the grocery store market from 34% to 34.1% at the expense of Pepsi, which now has 32.1%. That may not sound like much, but in the soft drink industry each tenth of a point of share is worth $44 million. Pepsi won't give numbers but says its own supermarket data show it growing faster than Coke. Even so, Pepsi's torpid results are surprising, particularly since it owns the most popular advertising on television. With its slightly goofy arm gesture, the Summer Chill Out campaign caught the imagination of viewers. And the current Diet Pepsi campaign has inspired millions to sing along with Ray Charles and his rendition of You've Got the Right One Baby, Uh-huh.

Indeed, by Madison Avenue's reckoning, Pepsi has left Coke in the dust. While Pepsi's ads routinely rank No. 1 in viewer recall, according to market researcher Video Storyboard Tests, Coke usually ranks fourth or fifth. Yet memorable advertising hasn't saved Pepsi from forgettable sales. James Murren, an analyst at C. J. Lawrence Inc., predicts that the recession and a fierce price war between Coke and Pepsi will reduce third-quarter earnings at Pepsi by 1%.

That's bad news for parent PepsiCo, which is also struggling with depressed earnings at its Frito-Lay and Kentucky Fried Chicken units. And it has prompted some hard thinking at the company's Somers (N. Y.) headquarters. Craig E. Weatherup, president of Pepsi-Cola Co., says that he is eager to jump-start sales: "It's the No. 1 thing on my list." Weatherup doesn't blame Pepsi's ads for the lackluster results. But he and marketing chief David Novak aren't hesitating to tinker with Pepsi's image. The company recently unveiled a redesign of Pepsi's logo. And sources close to Pepsi say it plans an overhaul of its 25-year-old Pepsi Generation ad campaign. Pepsi won't give details, but Novak notes: "We've got to be open to looking at different things."

NO ZING? To some Pepsi bottlers, the slow sales point up the limitations of even the best ads. Earl G. Graves, chairman of Pepsi-Cola's Washington (D. C.) bottler, says slick pitches can't combat Coke's rampant discounting. Such tactics have helped Coke hold onto a lead over Pepsi in grocery-store sales since 1984.

To be sure, Coke spends millions on image advertising as well. And the company is fighting charges that its ads are outmoded and lack zing. Yet Coke clearly doesn't share Pepsi's yen for the award-winning ad. Says Peter S. Sealey, director of global marketing at Coca-Cola: "Whether or not Coke wins a Gold Lion at Cannes in 1992 is so immaterial as to be inconsequential to me."

Coke trumpets more mundane marketing efforts, such as its exclusive contract with the National Football League to sell Coke at NFL games. As a result, Coke's familiar logo is plastered on scoreboards from Giants Stadium to Candlestick Park. The company believes that such ubiquity builds sales of the brand in grocery stores.

Coke also holds an advantage in the price wars. Unlike Pepsi, which owns many of its bottlers directly, Coke has spun most of them off into a separate public company, Coca-Cola Enterprises Inc. So when Coke pushes through a discount, CCE, rather than Coke, absorbs the hit to profits. When Pepsi discounts, it takes the hit itself. Weatherup hopes that a management change at CCE will shift Coke's focus from discounting to other marketing ploys. That would allow Pepsi to refocus its energies, too.

One thing Pepsi remains committed to is big-budget advertising. It hasn't forgotten that the Pepsi Generation ad campaign turned it from a bargain brand into a formidable No. 2. But now, Pepsi faces a new challenge: taking on Coke in a market where even stars as bright as Ray Charles don't guarantee stellar sales.