Pepsi's comeback: Part II

Remember Pepsi-Cola’s attempt to re-enter South Africa 10 years ago? From booking its endorsement star Whitney Houston in a stadium where Coca-Cola owned marketing exclusivity to fielding rookie New Age Beverages against the formidable South African Breweries’ Amalgamated Beverage Industries, it was Pepsi’s bloodiest chapter in the history of the cola wars.

Coke not only withstood Pepsi’s invasion of South Africa, it counter-attacked in Venezuela, where Pepsi had an 85% market share, and captured that entire market in one fell swoop by buying Pepsi’s local bottler.

Pepsi announced a coming in-vasion of South Africa in a press release that only a few United States beverage trade journals picked up on. The press release indicated some interesting strategy changes.

Firstly, it is not being spearheaded by any pop singer, perhaps unsurprisingly considering Coke and Pepsi have cause to regret associating their brands with George Michael and Michael Jackson, respectively.

Secondly, instead of a black economic empowerment joint venture, Pepsi-Cola’s fighter in the South African theatre of the cola war will be Pioneer Foods—a boere outfit better known to consumers through its brands Bokomo, Weet-Bix and Marmite.

Ten years on, Coke faces a far more formidable foe. Pepsi-Cola’s parent company Pepsico is already entrenched in South Africa—not through drinks, however, but through crisps. A phone call to Simba these days will be answered with the following greeting: ‘Pepsico South Africa, how may we help you?”

Though Pepsico’s market capitalisation recently overtook Coca-Cola’s, it has not overtaken its rival in the soft-drinks business. Crisps pay the lion’s share of Pepsico’s dividends—not just in South Africa, but worldwide.

The corporation was created in 1965 through the merger of Pepsi-Cola with Frito-Lay. Frito-Lay’s crisps and Pepsi’s cold drinks each contribute roughly half of sales, but the crisps business—where Pepsico does not face mighty Coke, only small regional players—is far more profitable.

With all eyes on the cola wars, Pepsico’s global domination of the crisp market over the past decade has gone virtually unnoticed.

Both Pepsico’s arms—Frito-Lay and Pepsi-Cola—re-entered South Africa by forming local partnerships. Frito-Lay bought half of Simba for $55-million in June 1995, while Pepsi-Cola partnered New Age Beverages.

The latter was liquidated in 1996 after Pepsi-Cola refused to pour further capital in to fend off creditors owed more than R419-million, while Frito-Lay upped its stake in Simba, turning it into a wholly owned subsidiary in December 1999.

The local Simba takeover story is echoed in the United Kingdom with Walkers and in Mexico with Sabritas. These acquisitions were all part of Pepsico’s global blitz to buy dominant regional potato-crisp makers.

While Pioneer Foods seems an odd choice of partner since it competes against Pepsico on the savoury snack business, Namibia Breweries seems the obvious choice.

Just as Coke enjoys hegemony in South Africa thanks to its alliance with SABMiller, Pepsi has captured Namibia’s soft-drink market by tying up with Nambrew. Those few Pepsis that have been served in South Africa over the past decade crossed the border with Nambrew’s Windhoek Lager.

Pioneer appears to have lined up this deal by buying some of New Age Beverages’s equipment in its 1996 liquidation, which Nambrew declined to do. Pioneer entered the beverage market six years ago by purchasing a 37,5% stake in Ceres Fruit Juices. Since then it has acquired the rest of the shares and now owns 100% of the company.

Pepsico’s press release described the arrangement with Pioneer Foods as a franchise agreement—there is no mention of Pepsico buying a stake. But given Pepsico’s disastrous experience in Venezuela where Coke staged an overnight coup by buying half of Pepsi’s independent bottling company—this seems too precarious an arrangement to last if the local cola war gets fierce.

Pepsico’s former chair-person and CEO, Roger Enrico, wrote a book titled The Other Guy Blinked: How Pepsi Won the Cola Wars before his set-backs in South Africa and Venezuela (which may have contributed to his replacement by incumbent Pepsico head Steve Reinemund).

When he wrote the book in the late Eighties, Enrico could crow over his rival’s New Coke fiasco, caused by forgetting a cardinal rule in the fast moving consumer goods business that Enrico pithily summarised as: ‘Don’t fuck with Fritos.”

Enrico explained that this saying was coined after a dip in Fritos’s sales. An investigation revealed a chemist at the flavourant plant had tinkered with the formula, believing his new way achieved the same taste more cheaply. The chemist was convinced there was no difference, but customers noticed a change and were buying less. As soon as Fritos were made the old way, sales recovered. The lesson Pepsico took to heart was don’t tamper with market leading products.

So, has ‘don’t fuck with Fritos” been localised into ‘don’t stuff with Simba”?

No, because US multinationals are far too regimented and brainwashed by their own corporate logos to let regional brands be. The mastermind behind Pepsico’s global chip blitz, Dwight Riskey, explained to ABC News that regional brands such as Simba are slowly being morphed into one global Frito-Lay logo.

Riskey said that with brand perception a crucial factor, he ordered a redesign of the Frito-Lay logo, eventually settling on a red logo with a banner suggesting ‘celebration” and a sun denoting ‘universality.” The logo, along with the company’s long-held marketing image of the ‘irresistibility” of its chips, would underpin the company’s global expansion.

After buying Walkers, the dominant chip in the UK, Texas-based Frito-Lay refashioned the Walkers logo into the red ‘banner sun” design, as a first step toward changing the brand to Frito-Lay outright. Similar plans are under way for Sabritas in Mexico and Simba in South Africa. ‘We just say, ‘You know that stuff you love? Well, now it’s going to be called Lay’s,’” said Riskey.

Like Fritos’s customers who rejected what was supposed to be an imperceptible change in taste, local consumers seem to be buying less Simba.

Before Pepsico’s takeover, Simba boasted a 60% market share. Pepsico’s annual reports showed this slipping to about 55%.

A problem both Pepsi and Coke face is that the world’s perception of the US has changed for the worse. Pepsi is credited with getting the thin edge of the capitalist wedge into the old Soviet bloc. In 1972, Pepsi-Cola became the first Western consumer product to breach the Iron Curtain when it struck a barter agreement to exchange its concentrate for Stolichnaya Vodka.

To Russian youth in the Seventies, Pepsi wasn’t just soda water mixed with obscene amounts of caffeine and sugar, it truly tasted like freedom.

In the post Cold War era, Pepsi and Coke have lost their symbolic cloaks and people have started to see cola for what it is—disgusting gunk that makes you fat.

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