Christopher Carey: Can you maybe just touch on how investment and priorities will evolve in 2023. I think one of the key takeaways from 2022 was distribution costs between shipping, handling and merchandising activity was a key driver of SG&A inflation, but I’m conscious of double-digit increases with added marketing spending out of the gates into Q1. So can you maybe just frame how overall investment will be evolving over the course of this year in the context, maybe some easing on inflation and certain SG&A buckets and an ability to put more spending in others.
Ramon Laguarta: Yes, Chris. Listen, I think the framework of investment is similar to what we expressed in the past. We mean #1 priority for us is to make sure that our categories remain highly visible in consumers’ minds in a complex consumer choices environment. And our brands do very well in those categories. So that’s priority number one, make sure that we continue to be a preferred brand with our consumers. Second, we continue to invest in transformation of the business, digitalization and productivity at the center of the strategy systems. We’ve been investing on that for quite a while. That continues to be an enabler of all the data strategy that we have in the business. And those are the two big projects, we continue to invest in capacity.
There is good volume growth across many of our markets around the world, and that continues to be a priority in enabling the brands to continue to grow. So those are the principles. I don’t know, Hugh, if there’s anything else.
Hugh Johnston: No, I think that’s the only thing — and I think where Chris is going with the question from his perspective as well. Chris, I think you’ll see more of the financial impact of those investments in SG&A significantly less selling cost of goods. So as you’re modeling it out, SG&A is a place where you’ll see all the items that Ramon referenced will be hitting.
Operator: Our next question comes from Peter Grom with UBS.
Peter Grom: So I was hoping to get more color on the international performance in the quarter. But maybe specifically in China. I know it was called out in the prepared remarks is a market where you gained share, and maybe I missed this, but I don’t think it was mentioned when discussing growth in the quarter. So can you maybe share a view on the current environment in China how that evolved through the quarter and kind of how you see that progressing from here?
Ramon Laguarta: Yes. Yes, we’re seeing, obviously, in China, a optimism in consumers and optimism in the customers and that’s driving volume for us across the — across both our food and our beverage business. The organic share, especially in snacks. Snacks has been performing very well through the pandemic and continues to outgrow the category. And in beverages as well, we’re seen competing quite well in Colas and sports hydration. So yes, obviously, this is going to be a tailwind for us as the year progresses both in away from home and in-home consumption.
Operator: Our next question comes from Robert Ottenstein with Evercore ISI.
Robert Ottenstein: Great. Given the strong start to the year and your confidence in the year, I thought I’d ask a longer-term question. And that is, as you look at the categories that you’re in, over time in the past, you’ve expanded in certain countries a little bit outside of beverages and snacks either for reasons of scale or growth opportunities or maybe that’s just what was available as part of an acquisition. Over the next, call it, next 5 years or so, do you believe that you’re in the right categories to drive your algorithm? Or do you see potentially the need or desirability to expand and do some adjacent areas. And given the advances that you’ve made in IT and logistics, perhaps that’s even a greater opportunity than in the past?
Ramon Laguarta: It’s a great question. Listen, we believe our categories are large and growing at a very fast pace, around 5% globally. I think our main responsibility is to maintain the innovation and make sure that the portfolio evolves with consumers, the brands continue to be super relevant. And that is where we want to focus our efforts. We’re making some small moves, as you saw, for example, when we’re going into low alcohol here in the U.S., expanding the brands. We’re making small moves like Cheetos going into Mac and Cheese. So we’re expanding some of our brands organically into some new spaces that make sense from the consumer point of view that we believe our categories are large, global, healthy, and we — our responsibility is to give them healthy and growing very fast.
Operator: Our next question comes from Vivien Azer with Cowen.
Vivien Azer: I wanted to ask about Pepsi Zero Sugar given the reformulation and the broad-based international distribution. Can you offer some perspective on how that’s performing relative to expectations? And as well, could you possibly update us on how the organization is tracking towards your 2025 ESG target to drive 60, 70% of volumes from lower added sugar beverages?
Ramon Laguarta: Great question. And it’s essential to our strategy, continue to drive low sugar and nonsugar products as kind of the portfolio transformation. In the case of Pepsi, obviously, that is very relevant for us given the size and scale of Pepsi brand for us. The relaunch in the U.S. with a new formula is very — it’s been very well received by consumers based on our early data of repeats and preferences. The brand is growing 60%, if I remember correctly, in the first quarter, and that’s driven a little bit by distribution, but it’s mostly velocity. So clearly, the consumers are — they like the product and they’re coming back to the product. Globally, we also see big growth of the nonsugar segment in the category 2, 3x, the average of the category in most of the markets.
And we are driving that growth along with some of our key competitors. I think it’s a strategy that is working and it’s keeping the category very relevant for consumers. We’ll continue to invest in nonsugar as a driver of growth for our brands.
Operator: Our next question comes from Gerald Pascarelli with Wedbush.
Gerald Pascarelli: In U.S. measured channels for salty snacks, we’ve seen private label products gained share of the overall category for the past few months now. This has obviously have seen in tandem with very strong performance and market share gains for Frito as well, which is great. But I was just curious if you’ve seen any near-term changes, some broad consumer purchase patterns in this category relative to maybe a few months ago? Any thoughts there would be helpful.
Ramon Laguarta: Yes. In general, we’re seeing private label growth in some of the categories where we participate, especially waters, juices that we used to participate in some categories in salty snacks as well as you mentioned. As you will say, Frito-Lay is — I think it’s growing share of market at the fastest pace that we’ve seen in the last, maybe 10 years, if I recall, as a consequence of the great work the team is doing in terms of execution, but mostly innovation and brand building. So I think we see both private label increasing, although from a very low base in salty snacks. But most importantly for us, we’re seeing our brands continue to gain loyalty, expand their consumer base and be preferred in that segment. But yes, private label is slowly increasing and in — from a very, very low base as I said, in some subsegments of the salty snacks business.
Operator: Our next question comes from Brett Cooper with Consumer Edge.
Brett Cooper: With about a year in of and Hard Mountain dew, I was hoping you could provide some color on your view of the performance of the brand and the operation to date, any learnings? And then how you think about proceeding from here?
Ramon Laguarta: Yes. Listen, we’re happy with the learnings that we’re taking, both in the operation of this category, which is new to us and also in how we create consumer demand and consumer loyalty, and we continue to find partners to create new solutions for consumers with our brands. We just launched a tea version, a hard tea version with Lipton and FIFCO Company. They developed a great product, which we’re going to start distributing through our system in the next few weeks. So we’re going to go into the summer with 2 main products, Mountain Dew — Hard Mountain Dew and Hard Lipton. As I said, our intention is not to build a large portfolio of products and complex portfolio, but is to focus on a few good brands developed with strategic partners and then leverage our distribution capabilities to give it to consumers all across the country.
That’s our journey. We’re not rushing. We’re going at a speed that we learn and we make this business solid with the right margins and the right consumer propositions.
Operator: Our next question comes from Filippo Falorni with Citi.
