Pepsi vs. Wall St.: Why Should a Soda Company Try to Be 'Good for You'?

Can a multinational company be an innovative force for good in a world of corporate bean-counters and hard-nosed investors? A brown sugary soda maker is teaching us how.


There is a new Pepsi ad you've likely seen where Santa Claus is getting down with his elves on a tropical island. Dressed in a tacky Hawaiian shirt, he saunters up to a tiki bar and orders a Pepsi. "But Mr. Claus, I thought you had a deal with ... you know!" the bartend asks. "I'm on vacation," St. Nick says with a wink and a fist bump.

The ad seems harmless enough. But it actually represents an important step for Pepsi and a dangerous inflection point for corporate social responsibility and social media causes. That sounds histrionic. It's not.

PEPSI TRIES TO BE "GOOD FOR YOU"

When Pepsi launched "Refresh," a social cause campaign that allows non-profits to compete for local grants, few predicted its success. After all, this was a soda company, not a charity. Pepsi's namesake product is brown carbonated sugar water, hardly the platform for an earnest call to local action. But it's difficult to understate the reach and resonance of the campaign architected by Pepsi with help from the bright-eyed optimists at GOOD Magazine.

Even though the campaign was never intended to directly boost sales of Pepsi's core blue-can product, stagnant sales now force Pepsi's charismatic CEO Indra Nooyi into the strange position of defending her job even as observers agree she has positioned her company for the future, raising a dangerous question. Will Wall Street support a CEO as they build a stronger company for the future at the cost of a few quarters of unsustainable growth?

PepsiRefreshProject-hi-prp_logo.jpeg

To understand the Pepsi Refresh project, you need to understand the position Pepsi found itself when Indra Nooyi took over as CEO in 2006. When Nooyi, a long-time Pepsi insider, arrived at the top job, she saw the growth of their flagship blue-can Pepsi product stalled and locked in an expensive war for market share with Coca-Cola. Multi-million dollar advertising campaigns were barely moving the needle. At the same time, public awareness over the health consequences of soda and the salty snacks from PepsiCo's cash cow Frito-Lay threatened to destabilize the brand's positive image. Nooyi had been involved with Pepsi's $13.6 Billion purchase of Quaker in 2001, and viewed Quaker's more healthful portfolio as a keystone opportunity to shift the share of Pepsi's products from what in Pepsi-Talk is "Fun for You" products like soda and potato chips, to "Good for You" products like Quaker oatmeal and Naked fruit juices.  

Nooyi called this growth strategy "Performance with Purpose," which Pepsi describes as being "focused on delivering sustainable growth by investing in a healthier future for people and our planet," and was lauded by companies like Walmart that also had made public declarations of their commitment to sustainability. Pepsi's Refresh campaign was displayed as proof of commitment to Nooyi's Performance with Purpose, which promised superior financial returns (e.g. performance) through Pepsi's commitment to its employees, the planet and the health of the consumer. Chief Marketing Office Jill Beraud proudly declared that as part of Performance with Purpose, "we're going to take $20 million out of our marketing budget to fund our consumers' ideas, ideas that move the world forward." Pepsi chose to skip its super-bowl ads in 2010 for the first time in 24 years in order to focus on Refresh. At the time, it seemed like a brilliant move.

"REFRESH" FIZZES ... WHILE PEPSI FIZZLES

Word spread quickly about the Refresh campaign though Facebook, as eager non-profits pushed family and friends to vote for their cause. Fans cast more than 80 million votes on the RefreshEverything website and more than a thousand ideas received a share of the $20 million in grants. Pepsi calculated that the campaign generated more than 3.39 billion media impressions. Pretty good for a campaign that spent its money on local causes instead of billboards. Forbes named Pepsi Refresh one of the five "Best Ever Social Media Campaigns." And it had larger ramifications as well. The campaign helped prove that social media wasn't just about gossip over how long Kim Kardashian's marriage to Kris Humphries would last. Instead, it could serve as a venue for community organizing.

While Pepsi was busy preparing for the future, the company's namesake Pepsi cola was sinking. In March, 2010, Pepsi slipped to become the third most popular soda in America, behind Coke and Diet Coke. Angry local bottlers grumbled that Nooyi was fixated on Performance with Purpose to the detriment of her bottom line. The Wall Street Journal, in a scathing article criticizing Nooyi for taking "her eye off the ball,"reported that U.S. sales of Pepsi-Cola and Diet Pepsi fell 4.8% and 5.2% in 2010. Despite the success of the Refresh project, saber-rattling from bottlers and Wall Street analysts has lead Pepsi back to old-fashioned soda-hocking, epitomized by this summer's Pepsi ads feature Santa Claus Pepsi as the fun alternative to Coca Cola. Jill Beraud, the chief marketing officer who supported the $20 million transfer of funds from traditional marketing to the Pepsi Refresh project has left the company, along with a host of other marketing executives involved in the project.

THE REAL LESSONS OF PEPSI "REFRESH"

Five years ago the word sustainability in a business context was more likely to be used to describe a company with predictable earnings growth than any sort of social or environmental commitment. But since the latter half of the last decade, when high gas prices and Al Gore's powerpoint collided, the word sustainability has become synonymous with the touchy-feely cause orientation epitomized by Pepsi's Refresh project. Wall Street analysts have a hard time telling the difference between a distracted CEO trying to impress their children, and a forward-thinking leader using sustainability to transform their company.

Sometimes a CEO needs to ignore those who prefer the status quo and embrace a new direction. Companies that hope to be around for a generation -- sustainable companies -- adjust to changing social values, technologies and expectations. This is nothing new for Pepsi. Pepsi has undergone major strategic changes that were undoubtedly as controversial as Refresh at the time. Pepsi, created in 1898 by pharmacist Caleb Bradham, was originally called "Brad's Drink" by his customers and later renamed to "Pepsi‐Cola."

Pepsi has to protect its tradition of innovation

Pepsi was one of the first companies to switch from horse-drawn transport to trucks. During the Great Depression they doubled the size of their bottle, from six-ounces to twelve-ounces, but kept the price at a nickel. During World War II the company adopted a new red, white and blue color scheme to demonstrate its patriotism. Each of these efforts, like Refresh, reflected changes in society and technology. Today, marketing is going through a similar upheaval.  Campaigns that are clever, beautiful and ubiquitous may no longer be enough for brands that want to connect to the current zeitgeist of community service, cultural relevance and ecological protection. And this is where the danger of the myth of the "failure" of the Pepsi Refresh project enters.

For most of the companies engaged in sustainability projects, like Nike, P&G, Coca-Cola, and Walmart, sustainability has been an effective toolset to squeeze out costs, increase employee morale and stoke innovation. Unless corrected, the message from the Refresh campaign is that companies should stick to their knitting and just wait for the future to present itself. This is a dangerous conclusion, not only for local communities and the environment, but for companies that misread the Pepsi Refresh parable.

Here's a better read of the actual events surrounding the Pepsi Refresh campaign. First, by aligning Pepsi's interests to the interests of consumers they began building long term brand loyalty. Second, Pepsi tapped the energy of those who want to move the world forward by finding a way to support their dreams. Finally, Pepsi helped prove that social media is the native medium for social causes, and brands that help build this social infrastructure will benefit.

Pepsi, thankfully, is not backing off from its commitment to the Refresh project. A Pepsi spokesperson confirmed for me that the grant-making this year will be roughly equivalent to last year. Pepsi is also stepping up its traditional marketing expenditures, including Santa dancing on the beach, since being well-regarded alone is necessary but not sufficient to sell soda.  As for the story that will be told about the Refresh project, the jury is still out. If Pepsi follows through on Nooyi's Performance with Purpose commitments, it will emerge a radically stronger company. Only time will tell. As one insider told me, "let's not write the book report before we finish the book."

Presented by

Adam Werbach is the co-founder of sharing startup Yerdle, formerly the chief sustainability officer for Saatchi & Saatchi and the president of the Sierra Club. He is the author of Strategy for Sustainability: A Business ManifestoHe lives in San Francisco and Bolinas, California.

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