PepsiCo: More in-housing has been 'terrific' way to cut costs during Covid-19

PepsiCo has been building up its in-house agency capabilities during the coronavirus lockdown because it is a "terrific" way to speed up working and save money.

The US soft-drinks and snack-foods giant cut "non-essential" advertising spend as global revenue slipped 0.3% and it ran up extra Covid-19-related costs in the last quarter.

Advertising remains "a key component of our strategy" and "we still think that it's critical that we continue to use that lever to drive penetration of the brands and trial", Ramon Laguarta, chief executive of PepsiCo, told investors on its earnings call.

"We also have become a bit more selective about the type of A&M [advertising and marketing] that we're doing," he said.

That has meant stopping "some of the activities that had lower ROI" and "we're putting more money against the initiatives that had more return on investment".

Laguarta went on: "Sometimes a crisis helps [a company] to be more selective and to be more impactful [in its decision-making]."

In the case of PepsiCo, it has been looking for "simplification" and a focus on "fewer and bigger" initiatives, according to Laguarta.

"Part of that has been building some more capability to do A&M in-house," chief financial officer Hugh Johnston said.

"It's got a couple of benefits. One, it improves our speed; and number two, it has proven to be more efficient over time

"So, we can actually get [the] same or more value for less money, which is obviously a terrific outcome for the company."

PepsiCo spent $3 billion on advertising expense in 2019, up from $2.6 billion in 2018 and $2.4 billion in 2017, according to its annual report.

The company suffered a blow in 2017 when an in-house creative team, Creators League, made a Pepsi ad featuring Kendall Jenner at a civil-rights demonstration that critics said trivialised police brutality. 

PepsiCo has continued to invest in in-housing, including media and data capabilities.

Josep Hernandez, senior director of media and total connections planning at PepsiCo, told the Programmatic Pioneers Summit in London last year that the industry was being held back by siloes and short-term concerns about "the threat of in-housing".

"It’s not about in-housing. It’s about upskilling and building capability internally, so you can get greater control of your advertising spend," Hernandez explained. "Instead of having a digital marketing team, we have a marketing team that is suited for the digital age."

PepsiCo uses a number of Omnicom agencies, including OMD, around the world.