Retailers, consumers and prices
Gatorade demand dented by U.S. housing slump
Nooyi — on a conference call with analysts after the maker of Pepsi-Cola and other sodas and Tropicana juices reported a better-than-expected quarterly profit – said she has met with convenience store CEOs who told her the weak U.S. housing market has resulted in fewer construction workers stopping by for sports drinks and other snacks on their way to the job.
“One of the things that used to happen is the construction worker used to pull up with the pickup truck at 6 or 6:30 in the morning, buy six or seven bottles of 32-ounce Gatorade, a few bags of Doritos, throw it in the truck and pull off to the construction site. With housing starts being down as much as they are, that construction worker is not coming through the (convenience store) to pick up that Gatorade and so there’s no question that we have lost that active-thirst occasion related to that construction worker who was toiling in the hot sun.”
Nooyi said the Gatorade franchise will shrink in the short term, but the company is running the business with the long term in mind.
She said PepsiCo will not go to lower “private-label pricing” and is “jealously guarding” the brand’s equity. She said the core athletic user is extremely loyal and that the company is offering other products to retain casual users who might be lured by lower-cost tap water, bottled water and in some cases soft drinks.
Nooyi said Gatorade previously experienced strong growth due partly to the rising number of casual drinkers and warmer-than-normal weather. Now, those casual drinkers have more options, the weather has cooled and the recession has some buyers trading down.
John Compton, CEO of PepsiCo’s Americas Foods business, added that higher unemployment and lower housing starts had indeed hurt convenience stores, particularly in the snack business over the last three to four months. However, he said more broadly in the company’s “up and down the street” channel, which includes convenience, dollar and drug stores, the total business has not changed very much as the dollar stores have picked up quite significantly.