Pepsi Bottlers Meet in Las Vegas. Pepsi Vanilla and 'Billionaire' Confirmed. BD Talks With Hudson.

Pepsi U.S. bottlers meet in Las Vegas April 1-3. Pepsi unveils product, promotion and package news. Confirms introduction of vanilla cola to be called "Pepsi Vanilla" (BD 3/7/03). Company will simultaneously introduce regular/diet versions. Pepsi says product will hit shelves in August. Bottlers laud move, but several say they hope it's available earlier in summer selling season. However, Pepsi appears intent on applying early summer new-product focus to launch of second Mt. Dew line extension, LiveWire. New promotions include "Billionaire" (details below) and Mt. Dew promotion tied to upcoming movie, "The Hulk." Views. Re meeting, bottlers upbeat: 1) "What they showed us is impressive." 2) "Great meeting."

Hudson. In interview (below), Pepsi North America president Dawn Hudson: 1) details reasons for Pepsi Vanilla timing. 2) says Pepsi mulls under-$1 C-store package. 3) explains details of new Fridge Mate 12-pack.

Pepsi Vanilla; 'test markets for Coke.' Pepsi Vanilla logo (photo) shows word "Pepsi" in white; "Vanilla" in cream color. Below Pepsi globe icon are words: "Smooth Vanilla Cola." BD estimates Pepsi Vanilla regular/diet volume in 2003 will be 30+ mil cases. Executive. "With Pepsi Vanilla, we'll reclaim our fair share of the cola category -- and then some. We deserve it, and we plan to take it -- with no regrets," declares Pepsi North America senior vp/chief marketing officer Dave Burwick. Adds: "We've run some fantastic test markets for Coke. We've shown them the way in bottled water, in lemon cola ... It's about time they returned the favor." Adds re Pepsi Vanilla, "it's a smoother, better-balanced vanilla, with a directional win against Vanilla Coke."

Packaging; innovation. Pepsi will introduce new refrigerator-accessible 12-pack, different in configuration from Coke's Fridge Pack. Pepsi is also testing 8- and 12-pack configurations similar to Coke's. Hudson provides details of new package (below). She stresses her belief that innovation must help grow core brands: "Going forward, we're committed to innovation. We are the innovators." But notes, "anyone can pull the rabbit out of the hat once. The trick is in making it stick." Adds: "Innovation must be fundamental, but also incremental. It must be 'in addition to,' not 'instead of.' We want to grow the core and add more."

Blue Jeep vs red hydrant. Pepsi shows multiple new ads. Bottlers give ads high marks. Among spots, one each features singers Beyoncé Knowles and Shakira. Plus one humorous ad shows can of Pepsi and can of Coke headed for recycling machine. Pepsi can "assures" frightened Coke can that they'll see each other again. In next scene, blue Jeep pulls up alongside red fire hydrant.

Nackard is top bottler; Kendall. Former PepsiCo chairman Don Kendall announces bottler of year awards. Top award goes to Pat Nackard president of Pepsi Nackard Flagstaff Arizona. Pepsi Nackard recently switched from Cadbury's 7UP and A&W to Pepsi's Sierra Mist and Mug, and, upon receiving award, Nackard quips: "I guess the Sierra Mist and Mug decision was a good one." Kendall lauds bottlers and declares, "many good ideas come from the bottlers."

'Billionaire.' Pepsi also unveils multiple promotions, including "Billionaire" in which consumer could win $1 bil. Summer-long promotion culminates in live TV show in September. Pepsi guarantees $1 mil prize. Winner will then have chance to play for $1 bil. Pepsi says there is one-in-1000 chance that $1 bil will be awarded. Hudson discusses financing details in interview. Promotion will cover Pepsi's core brands: Pepsi, Mt. Dew, Diet Pepsi and Sierra Mist.

Interview with Hudson. BD asks: Broadly speaking, how will you drive your business this summer? Hudson: "We need to make bigger news than the competition and be smarter about building incremental growth. That's our game plan. We have exciting product and package innovation and, I'd argue, the best summer promotions supporting our core brands since 'Star Wars' in 1999."

Why wait to introduce Pepsi Vanilla? "It will hit before Labor Day. We're taking a sequencing approach, going first with LiveWire and creating focus against LiveWire. I'm not surprised that many of our bottlers believe that they could handle (Pepsi Vanilla and LiveWire) at the same time. But we've had experience launching two (new products) at the same time -- Code Red and Pepsi Twist -- and feel that one was sub-optimized using that strategy."

Why regular and diet Pepsi Vanilla at the same time? "It's not huge, but there is now an established segment called vanilla cola. A significant amount of that -- just over a third -- is in diet. We want to take our fair share and feel we should go with both regular and diet together ... We think we've got a very good diet formula."

Plans to compete with Coke's Fridge Pack? "We've obviously been watching Fridge Pack very closely and have been testing different multi-pack configurations of our own. We have test-markets going on two-by-four eight-packs and two-by-six 12-packs, which are (similar) to what Coke has established. Getting into that type of configuration system-wide would require a capital investment of about $100 mil ... The problem is, when we analyze the markets where Coke has Fridge Pack relative to the other markets, we find tremendous consumer enthusiasm for the package ... but we've not been able to tie that to an overall volume lift." New Pepsi package? "(Though) we'll continue to test the two-by-four and two-by-six configurations, we're going to roll out our new three-by-four Fridge Mate, which provides the functionality the consumer is looking for without the (system) capital investment. We'll phase it in nationally beginning this summer."

How does new 3-by-4 package work? "If you take a traditional 12-pack and put it into your refrigerator, you will most likely put it sideways -- the way it is displayed in a store ... This new package changes the graphics to tell you to load it into the refrigerator three-cans high, instead of on its side. It takes up the same width as a Coke Fridge Pack. In over 80% of consumers' refrigerators, the second shelf in the refrigerator is high enough to allow a third tier of cans ... If you put it straight into the refrigerator, our three-by-four Fridge Mate lets you pull down the side (where) there is a door that opens. There is a rigid bottom piece that holds the cans from falling out ... The functionality from a consumer standpoint may be preferable (to Fridge Pack) in that (with the Coke package) you have to reach way in the back to get cans five and six. (With ours), you don't have to, they all feed so that they are very easy to get out."

Will there be an up-charge? "Zero."

Are there enough CSD package options for consumers? Need under-$1 C-store package? "Ultimately, it's up to our bottlers to set pricing with our retail customers ... But, in today's economic environment, I do think that we may be pushing the ceiling on what is price value for a single-serve item. We do, as a system, need to look at options." Less expensive single-serve package? "That's certainly one option we're looking at."

Promotions: can 'Billionaire' and 'Hulk' create core-brand growth? "In today's very cluttered marketing environment ... promotions have to stand out and have more visibility and pull than promotions we've generally run over the last few years. What "Billionaire" has going for it is high consumer involvement. Giving consumers an opportunity to get their picture in the paper or to be in a commercial creates a frenzy of activity well beyond the odds of one person actually getting into the commercial. In this case, the only way consumers have a chance of getting on a who-wants-to-be-a-billionaire kind of a program is through Pepsi ... We've given it a tie-in with the WB network to promote it all summer long, so that you're going to see a lot of p.r. buzz that will sustain involvement longer than most promotions ... It will have take-home relevance and, particularly, single-serve, because every time you get a twist-off, you get a code that gives you a chance to be on the show or you get an instant-win cash prize."

If someone wins $1 bil, how do you pay for it? "We have an insurance policy in place for that possibility ... Let me assure you, I won't be funding it out of my P&L."

What about 'Hulk'? "Hulk is green and Dew is green, and it's a great fit from a brand standpoint. I expect this one to drive a lot of in-store visibility and fun ... (Hulk) includes Sierra Mist, but it is conceived as a Dew promotion ... Everything we're doing includes Sierra Mist. We’ve found that a promotion which resonates with one brand and carries others along gets more consumer interest and is more brand-building."

Can CSD industry ever again grow at sustained rate more than one percent? "That's our goal. Whether the industry can get there is a question. I see a couple of things going on ... First of all is what I call the leaky bucket. We are putting a lot of new ideas out there, ideas that we have to invest a lot of space in just to get them visible and get trial. Over time, they take space from the core brands, and we haven't gained that much more space. So it creates a leaky situation for the category, where it's not getting that much real growth. As a system and as a category, we have to address that. Second is (the need for) packaging innovation and our ability to bring genuine new packaging that meets consumer needs. (An example is) our half-liter 12-pack. It gives people the re-sealability they want and gives them a good value package in a moderate size ... Packaging innovation is key. The diet business also is where growth is. So, how many consumers go to diet and how much packaging innovation sticks will (determine) whether the category can get up over one percent. Of course we are aiming for that."