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Sun 4 May 2014 10:17 AM

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PepsiCo chief plays down possible price hikes

MidEast unlikely to be part of plans by global bosses to raise prices on snacks & drinks in 2014

PepsiCo chief plays down possible price hikes

The head of food and beverages giant PepsiCo’s Middle East and Africa operations says product price increases in the region are unlikely despite global bosses signalling such a move in the US.

In an interview with ABC News in the US, PepsiCo chief financial officer Hugh Johnston said last month the maker of 22 brands such as Pepsi, 7Up, Doritos, Lay’s Tropicana and Gatorade planned to raise prices between two and three percent on snacks and drinks in 2014, but added “as we make the brands stronger, consumers are willing to accept that”.

It came as PepsiCo chairman and CEO Indra Nooyi said in the first-quarter earnings call that the firm has been “extremely responsible” in taking up pricing in carbonated and non-carbonated drinks, adding that “especially in a category like CSDs [carbonated soft drinks] taking down pricing is not going to drive up demand so much”.

In its Q1 results, the company’s snacks division volume grew by two percent overall and beverage volume was flat in trend, reflecting a wider shift in the US away from soft drinks as consumers chase healthier options.

“The two to three percent, maybe this is just the average for the entire company, but not necessarily that that’s going to be applicable to this part of the world,” Omar Farid told Arabian Business, in an interview to be published this Sunday, when asked about possible price hikes. “In the region, I don’t really think that that will be the case.”

In the Asia, Middle East, Africa (AMEA) region, despite a five percent net revenue drop to $1.05bn - which PepsiCo attributed to the impact of refranchising bottling operations in Vietnam and unfavourable foreign exchange translation - organic revenue grew by six percent (after increasing by 11 percent in 2013) and core constant currency operating profit increased by 10 percent.

In terms of volume, growth in the region doubled the company’s global figures in snacks at a 4 percent increase compared to 2 percent globally. However, its 1 percent decrease in beverage volumes was below a flat result overall.

“Q1
was really very good in terms of growing the volume, growing the
revenue and growing the profits as well,” Farid says. “The
second quarter of the year is very promising, because we will have lots
of activation, lots of consumer activities and we’ve lined up lots of
activities as part of our football campaign which has already launched.
We’re working very closely with our teams to
make sure that we bring the most exciting activities to our consumers.”

Farid, who took over as president in November after various senior roles with the company over 31 years, said the growth was led by Pakistan and Egypt, which both recorded double-digit revenue growth. He said the company remained committed to developing and emerging markets, which comprised 35 percent of PepsiCo’s global net revenue last year.

Farid said the company’s strategy centred on “the core and the more”. With about 90 percent of its revenue derived from soft drinks, investment would continue in key brands such as 7Up, Pepsi and Mirinda. However, he said it was focused on developing brands such as sports drink Gatorade, Aquafina water and Tropicana juice in response to the shift towards healthier options.

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