PepsiCo, Inc.

Good morning and welcome to PepsiCo's fourth quarter earnings question and answer session. Your lines have been placed on listen only until it is your turn to ask a question. In order to ask a question or make a comment, please press star followed by one on your touchtone phone at any time. You may remove yourself from the queue by pressing the pound key. Today's call is being recorded and will be archived at www.pepsico.com. It is now my pleasure to introduce Mr. Ravi Pamnani, Senior Vice President of Investor Relations. Mr. Pamnani, you may begin.

Thank you, Operator. I hope that everyone has had a chance this morning to review our press release and prepared remarks, both of which are available on our website. Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, 2021 outlook, and the potential impact of the COVID-19 pandemic on our business.

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Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, and we are under no obligation to update. When discussing our results, we may refer to non-GAAP measures which exclude certain items from reported results. Please refer to today's earnings release in 10-K, available on pepsico.com, for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. Joining me today are PepsiCo's Chairman and CEO, Ramon Laguardia, and PepsiCo's Vice Chairman and CFO, Hugh Johnston. We ask that you please limit yourself to one question. And with that, I will turn it over to the operator for the first question.

Thank you. As a reminder, if you would like to ask a question, please press star then the number one on your telephone keypad. Your first question comes from the line of Bonnie Herzog of Goldman Sachs.

Thank you. Good morning, everyone.

Good morning.

Good morning. I had a question on your marketing and how we should be thinking about your ad spend levels this year. It seems quite obvious, I guess, that you can operate now at lower ad spend levels. So I guess I wanted to clarify with both of you that You do expect to pull back on the absolute level of your ad spend this year. And then how should we think about this from a long-term perspective, especially when I think about the context of the overall health of whether it's your categories and certainly your brand equity and how you're going to maintain that. Thanks.

Yeah, good morning, Bonnie. Yeah, this is Ramon. The advertising levels, I don't think we're – maximize on investments. What we think is that the A&M line has opportunities for optimization, especially in what we call non-working, and we're working hard on optimizing that part, and obviously we're working on optimizing the return on investment on the advertising part, the media that impacts the consumer. One of the decisions we took this year was and if you look at Frito-Lay, for example, or some of our international business, we actually increased our A&M. And the reason for that is that within the formula for success of our portfolio, we have to have our large brands growing at a decent pace at the market level, hopefully. And for that, we need to keep them you know, modernize. We have to keep innovating on those large brands. But also we need to invest in the growth space of the category where sometimes we need to create new brands. And that requires a well-funded, you know, kind of support package to get those brands up and running. For example, if you think about the Frito portfolio, obviously we want to grow our Cheetos, Doritos, Tostitos, Lays, Ruffles, at a very good pace, and I think we're doing that. But at the same time, we need to build healthier portfolios, you know, brands like All The Eating Path or Smart Foods or Popcorners or, you know, Bayer. All those brands need to grow to have a portfolio of the future. The same with our beverage portfolio with Bubbly or with some of the... smaller brands we're creating. So that's how we're thinking about our A&M optimization, obviously, on the non-working, get the maximum ROI on the working part, but ensure that we can support both the large brands and the smaller future brands in a way that we have a sustainable growth for the future.

Our next question comes from the line of Dara Mosinian of Morgan Stanley.

Hey guys. Um, so first just a detailed question, uh, as, as we look at your earnings guidance for 2021, it's in line with the long-term algorithm, despite having nearly 800 million in COVID costs in 2020 that I assume will drop off significantly. So just trying to understand why there couldn't be upside to the, to the long-term algorithm. Should those costs drop off, if they're assuming reinvestment or higher commodities or other factors, And then second, Ramon, just sort of further on the question you just answered, we did see a pretty big shift in A&M spend to the Frito side this year, obviously pullback in beverage given the COVID situation. So I'd love to hear your thoughts on the ROI behind the higher spend in Frito. And if you think you're getting, you know, significant incremental revenue, from that or the yield on those investments as you shifted the allocation within the portfolio in 2020.

Hi, Diana. Hi, Nao. How are you doing with your recent work? Well, lately I've been collaborating with developers and engineers, and they work in entirely different ways than me, so I've really been learning a lot. Yeah, that's why I think the Killian's Game project is so interesting. It's like you're all working together to create a project that combines knowledge and imagination.

When we were asked to shoot Killian's game, we were brought on to create an environment where new technologies could be used on set and there would be a direct dialogue to the technology side.

The engineers don't always have access to the actual creative process. So they're creating things in a vacuum, if you will. We have the Xperia capturing BTS, so they're able to see their technologies and their products getting used on set. It really is like a film school for engineers.

Our intention was to set up an air of mystery, leading the viewer to understand that we're driving towards a little bit of danger. The Airpeak was able to create that motion for us and follow the car at a speed that was exactly what we needed.

Something I learned through this project was that international collaboration is truly possible. We predominantly shot Killian's game here in LA, but the final shot of the film was captured in Japan in a virtual production stage.

One of the things I enjoyed about creative prototyping is to kind of conquering the unknown errors that no one has ever solved before. I think if we do that, it's solving the problems for the future.

Working remotely definitely created certain sets of challenges. Getting the opportunity to film with the Venice 2 and then working within an amazing virtual wall over in Japan, that really changes the game for a lot of production. People from different places can work together and create really unique perspectives.

It was great to see Matt and Colin actually give active feedback on the feed to the second unit in Japan, and it was kind of like we were there almost.

We were able to tell a great story while testing technology, but at the root of it, the story is what will get people really excited and leave the audience wanting more.

It is so inspiring to see how much everyone grew from that experience, even though they're all working from different locations. Absolutely.

Chicken fries are back on the two-for-five mix-and-match at Burger King. Want them as a side? Duh. A snack? Obviously. A meal? Yes. Mix-and-match chicken fries your way on the two-for-five, only at Burger King. Thanks.

Great. Okay, Hugh, you want to take the first part on the, you know, how we're thinking about the short-term, long-term in our, you know, algorithm?

Yeah, I'm happy to, Ramon. Good morning, Diarra. You know, obviously, there's a lot of items that are in our P&L. We've identified the COVID cost as something we wanted to call out because it was extraordinary. There will be COVID costs and significant COVID costs still in 2021. So you really can't blow all of that to the bottom line. In addition to that, we are restoring some of the ANS. as Ramon mentioned, in the snack food business and a bit in the beverage business as well. But as we gathered here, given the level of uncertainty, we felt like being on long-term algorithm from a revenue and profit perspective was an appropriate goal for us. And I think if we hit these numbers as we expected, I think it'll be a good thing.

Yeah, Darren, so that's, you know, we're thinking about obviously maximizing the short term, but not at the expense of the long term. And I think it's to start a year thinking about, you know, our long term algorithm is a good way to start, you know, focusing the company on a sustainable performance for many years. So that's how we're thinking about it. Then with regards to the marketing ROI, we're getting much better at measuring the ROI on our marketing spends. And we think that actually we're, based on these measurements, we're getting much better at the ROI delivery of our investments. We're putting tools and we're putting, you know, kind of performance metrics to our marketing teams. In particular, what you were saying about Frito, Frito has, you know, a very low level of advertising. I mean, full A&M actually below 4% for a brand, you know, for a business that has so many multiple brands and has so much growth potential if you think about the share of micro snacks that we have. So I would think that if you think about the levers of growth for Frito in the future, I think A&M – and an increased A&M should be part of it. As we think about our push model, it's pretty optimized with our DSD execution capabilities. I think on the pool side, we have opportunities probably to maximize the frequency and to maximize the consumer connection with our brands and Frito versus what we do with some other parts of our business. That's how we'll be thinking about the A&M investments at Freedom.

Our next question comes from the line of Andrea Teixeira of JPMorgan.

Thank you. Good morning. So my question is on the use of capital. As you de-emphasized by BEX and you're focusing more on CapEx, on investment incapacity to meet demand or perhaps M&A. So if you can comment on your capital location, Hugh, And Ramon, I was possibly impressed with Europe and the recovery momentum there. Do you think it's going to go and continue into 2021 and embedded in your guidance? And conversely, what are your thoughts on the deceleration in LATAM?

Okay, let me start with the geography part and then we can talk about the capital. I would say Europe, we're seeing different Europes. Now we're seeing Eastern Europe quite strong. I would say Russia, extremely strong. Turkey, very strong. some parts in central Europe much better. Central Europe, I mean Germany, some of the more developed Europe. We're seeing the south of Europe very impacted by obviously the lack of tourism and people not going there for weekends or longer vacations. That is how we see Europe. When we look at 21, we think obviously as As mobility increases, we're going to see even better performance in Western Europe, and hopefully we can continue to see the good performance in the East. What we can see in Europe across the board is we're becoming more competitive. I think our share of market performance, both in beverages and snacks, was very good this year. So we managed to gain share almost in every single market, which is actually significant. the metric that we're following the most in a period of time where the markets go up and down depending on lockdowns, et cetera. In Latin America, actually, Brazil has been very strong throughout the year, and we feel very good about our Brazilian business also in terms of share of market, but also category growth has been very, very positive in Brazil. Mexico, at the beginning of the pandemic, we suffered a little bit in the pandemic you know, in the capillar part of our business. So the more, you know, kind of smaller fragmented trade, we saw traffic down and that impacted our sales given that we have a very good distribution and availability in the market. The business came back to, you know, much more solid performance in the last quarter in Mexico. And although we've been gaining share across the year, we're seeing also the category recovering in Mexico. So hopefully we see a much better performance in Mexico this year in absolute terms. Relative terms, I think we'll continue to gain share in the market. So those are the two big markets in Latin America. You get a good sign from those two. And, Hugh, do you want to talk about the capital principles that we have?

Yeah, happy to, Ramon. Overall, our capital allocation strategy hasn't changed. We've talked about this many times. Number one, make sure that we fund the business to compete and grow. Number two is dividend. Number three is tuck-in M&A. And number four is share repurchase. One and two, obviously, we've talked about in terms of our guidance. I would not expect, from the standpoint of the third one, I would not expect much in the way of M&A as we go through the course of this year, and certainly nothing large. So from that perspective, I think we've got a lot to digest right now. We're happy with where the portfolio sits. And then last, in terms of share repurchase, Obviously, we're trying to balance our debt rating versus our cash return to shareholders. We felt like the dividend increase was important. And at the same time, given the level of M&A that we've had over the last couple of years, balancing that out with the debt rating, we made a decision that we weren't going to have significant share repurchase in this year. That's purely based on balancing the debt rating with our return to equity shareholders. Nothing more than that, driving that decision.

Your next question comes from the line of Kamal Gajrawala of Credit Suisse.

Would you guys mind providing some just insights on how you're looking at the commodity cost environment, you know, where you're seeing maybe raw material inflation and then how you plan on addressing it through, you know, pricing or mix or trade spend?

Hugh? Yeah, I'm happy to take that, Ramon. Kamal, obviously there's some pressure in commodities. We're viewing commodities as manageable right now. I'll remind you that we do forward buy on areas where we can over typically about nine months ahead, but we can't forward buy on everything, and obviously there's some inflation in certain aspects of our cost structure. That said, we view the overall mixes as manageable between pricing and the balance of the P&L such that we don't expect it to be disruptive to the algorithm this year.

Your next question comes from the line of Brian Spillane of Bank of America.

Hey, good morning, everyone. I guess I had a follow-up question just related to Andrea's question around cash flow and Hugh, maybe can you talk about the CapEx levels, and will they be elevated for multiple years? And then I guess maybe some color on just where that incremental CapEx spending is going. Is it capacity? Is it capabilities? Just trying to get an understanding of whether or not we're going to be in an elevated CapEx cycle for a while, and then also just where the capital is going.

Yeah. Ramon, would you like to give me the hand on that one? Yeah, please. Go ahead. I'll add it at the end. Okay. Brian, a couple things on that. Yeah, it is elevated. We sort of have been running, as you know, about 5% of sales, and now we're running a little bit north of 6%. A couple big drivers behind it. Number one is the IT and digitalization spending that we're doing. That will be elevated for a couple of years as we sort of get through the combination of an SAP upgrade as well as a whole variety of digitalization efforts that we have going on in our supply chain and selling system. The second piece is primarily around growth capacity, and we expect that to be elevated for a couple of years. If you look at the way that we used to run the business, we ran capacity pretty close to the edge, and As we've pivoted to more of a growth strategy, we're taking capacity utilization down a little bit to enable us to capture more of the growth opportunities that are out there. So that's a big piece of the spend. And then the last is productivity capex. As we're looking at automation and looking at putting more capabilities into the plants that will yield cost savings, that obviously is a big driver. So I would say I would expect the capital spending to remain elevated for the next couple of years, and then I would expect it to return back to our typical norms.

Our next question comes from the line of Laurent Grandet of Guggenheim.

Hey, good morning, Ramon and you, and congrats on the strong hand of the year. I'd like to focus my question on the energy category. So in 2020, we saw you making an aggressive move into the energy category with the acquisition of Rockstar and the agreement to distribute bank. So could you please update us on where you stand in your journey to become a leading energy player? I'd like to understand your view on the Rockstar revamp. We saw the Super Bowl ad, but I'd like to understand a bit more on that. And obviously a new assessment of the situation with Bang, but also what are you planning to do with other brands like Du in the energy category?

Yeah. Thank you, Laurent. And yeah, a good question. Listen, let's talk first about Bang quickly. We're surprised by this move by VPX and especially given that, you know, it was a very good performance by PB&A on the distribution metrics. But, you know, at the end of the day, we plan to continue being the distributor of Bang until October 23. And, you know, we're going to do our best to make that brand, you know, well distributed and, you know, in the marketplace. But the core of our energy strategy was never Bang. It was a distribution cherry on top. It was obviously what we could do with our brands after the acquisition of Rockstar kind of free us up from some of the contractual obligations we had. So the first pillar is obviously Rockstar. Rockstar relaunched both in the U.S. and in expansion internationally as our core energy kind of mainstream proposition. I would say the integration of Rockstar into our supply chain is starting to happen. It's going to be a bit of a process until we get all the formulations and everything into our into our system, but obviously that's going to make it a better supply chain in itself. From the consumer point of view, we are, you know, you saw we're planning to invest in the brand. I think we found a consumer space where, you know, it's going to be a bit quite differentiated, and then we're improving the formulas and we're improving the, you know, building different propositions for multiple spaces in that kind of mainstream energy. At the same time, you will be seeing shortly some announcements on Mountain Dew launch in the springtime. It's going to be the first big move from Mountain Dew into the energy space. We're very happy with the way the product concept, the support package, and the support we're getting from our customers in terms of the launch. So that would be a good event. And it will be the first move of Mountain Dew, and there will be future moves as well from Mountain Dew into the energy space. Obviously, one of our big pillars in energy is our Starbucks partnership, which I think is at an all-time high in terms of the relationship and the market performance. We continue to innovate on the kind of coffee energy, triple shot, double shots, and we have some, I think, good ideas that I'm sure we'll make into the market shortly. And then we're looking at other brands in the sports area and some other kind of spaces within the energy management, energy up, energy down, that I think we can have a multiple set of solutions and brands that drive consumer solutions in a space that is obviously growing and has a lot of consumer pools. So it's important for us, as we said, both from the growth point of view and the margin expansion point of view, and we feel good about the steps we're taking brick by brick to build a solid foundation for us to play in energy over many years. So that's pretty much it. You will see more news from us in the coming weeks.

Our next question comes from the line of Vivian Azar of Cowan.

Hi. Thank you. Good morning. I was hoping that you could touch on your agreement with Beyond Meat and explain kind of the aspirations there in terms of the partnership as well as any embedded economic impacts in your 2021 guidance. Thank you.

Yeah, great question. Yeah, as you think about, you know, we're creating spaces for future growth. One of them is plan-based snacking, plan-based convenient solutions. We think that Beyond Meat was the right partner. We did a lot of due diligence in terms of R&D capabilities and kind of willingness to share with us in the future. And we have high expectations for that. There should be no implication for our 2021 kind of investment or high sales. It's going to be still a small business for us in 2021, but we plan to be in the market within this year.

Our next question comes from the line of Lauren Lieberman of Barclays.

Great, thanks. Good morning. I was curious just thinking back to kind of your longer-term plan, Ramon, that you laid out now. almost exactly two years ago. Is it fair? I think, you know, first order of business was seemingly to kind of shore up and reinvest in your bigger franchises. And I felt like the language in the prepared remarks today, there was a little bit more emphasis on, you know, stepping up the investments in the more ancillary but critical growth opportunities, whether it's smaller brands or kind of healthier segments of the categories. Can you speak to the degree to which maybe the environment of the last year kind of accelerated the support you were giving to your big brands and the impact that that really had on accelerating, I guess, your progress vis-à-vis your long-term goals? I'd be curious to hear sort of a progress report. Thank you.

Yeah, that's great. Good question. Listen, if you think back and you see the growth opportunity for PepsiCo, we are, you think about the large LRB category globally, we're about less than 10% on a $600 billion category growing at a 4% or 5%. And pretty much the same with micro snacks. The large category, $500, $600 billion globally. and we are less than 10%. So growth as a lever for the long-term value creation of these companies is clearly the number one. As we're thinking about our growth, obviously there is a lot of growth in our core brands. Our large core brands have a lot of opportunities both for more penetration and for obviously much more frequency. So we're thinking about that pillar is critical, and I think we're well invested now in our core brands. If you think about the performance, for example, of PB&A and how brick by brick we've been able to get Pepsi to growth, Mountain Dew to growth, Gatorade to growth, to accelerated growth, while we still grow our coffees and our teas and our sparkling waters. I mean, that is the growth model. If you turn it to the... to the snacks business, the same. We have our big core categories that play in the fun, social space, and we're building a set of brands in more, let's say, either morning or during the day, solo occasions, where we're less penetrated at this point. These are brands I was referring earlier of the Eat and Bath, Smartfoods, some of the recent acquisitions like Popcorners, Bayer. We're building a beautiful portfolio of solutions for those spaces. That is the growth of the company long-term, a well-balanced growth between our core businesses and those smaller niches that one day, 10 years from now, will become the big brands. If you think about other models that we're working, clearly our solar stream has been a fantastic acquisition for us. And it gives us a platform not only to have a sweet spot between better for you and better for the planet, which I think is going to be a sweet spot of growth globally, but also a new way to customize drinks. The same we're thinking about, for example, you know, the questions I just got. on Beyond Meat and the partnership. So we're building a lot of future opportunities for our portfolios to grow. At the same time, we don't want to keep our eyes off what are the core brands that drive the majority of the growth in absolute dollars of this company and that have a massive runway for growth in the future. So that gives you a sense of how we're thinking about growth, growth being our number one value creation, profitable growth, obviously. And I think we can do that over time by also creating those smaller spaces where I think we can enter and win in the future.

Your next question comes from the line of Kevin Grundy of Jefferies.

great thanks morning everyone and uh congratulations on the strong year um ramon and hugh for that matter just building off the last question around sort of balanced growth i wanted to come back to the margin opportunity at north america beverages because this has come up so you know on a number of a number of times on previous calls in your prepared remarks today it's been more about delivering a better balance and and improving profitability Last quarter, I think it seemed to me at least the tone was more on improving profitability. I just want to get a better understanding here of the current commodity cost environment, which you commented on a moment ago, as well as the spending intentions of your key competitor, because one would argue that they've probably never been more constrained than they have been this past year. I'm just curious if this will be another year of really limited margin enhancement given these factors. add North America beverages and want to get a better understanding of how big a priority this is for the organization and when can we expect a return to this sort of elusive mid-teens operating margin. So thanks for that.

Great. Let me take it first and then Hugh can add. I think when we, you know, I think the conversations we started about a couple of years ago was we want to make sure that, you know, we got PB&A to be a growth engine. And I think you know, brick by brick, we've been able to build a, you know, kind of make sure our brands are all growth brands. And I think we're there and the latest quarter of five plus growth shows that, okay, we're, you know, most of our brands are performing at a very good level. That was critical because we thought that, you know, there's no way to cut your costs, you know, in a way that is sustainable. So now we have, I think, a good machine that has the right local execution capabilities and the good brands and innovation. Now, we have the intentions to work, obviously, on the margin expansion of PB&A. That is a priority for us, a priority for the business. We see this business long-term and meet teams. You know, we want to do it in a sustainable way where we keep growing with the category and expand our margins. And we have, obviously, ideas on how do we pivot to categories, segments of the category that are highly more profitable, how we get better at selling the right pack in the right place at the right price. So our revenue management capabilities. We have a lot of cost opportunities in the end-to-end supply chain management and also the way we support the business. some of our G&A expenses, and a little bit on our A&M, as you mentioned, optimization. So all of that should give us the opportunities to continue to grow at the category above and starting to expand the margins. This year should be a year where you see already some movement in that regard. And as I said earlier, we see this business getting into the teens margins over the long run. and without sacrificing competitive performance.

Our next question comes from the line of Nick Modi of RBC Capital Markets.

Yeah, good morning, everyone. Ramon, I was hoping you could just talk about, you know, what's going on at retail in terms of assortment, you know, SKU management at the retail level because it seems like retails are finally starting to focus on higher velocity items and, you know, really trying to simplify their shelves because they all learned the lessons of COVID and not having enough stock of higher turning brands. So just wanted to get your perspective on that. And, you know, some of the things we've heard from retailers at Quaker has been under a little bit of space pressure. So just, you know, hoping you can provide some clarity there.

Yeah, I think, listen, obviously we all had to take a look at our supply chain, right, during this year because we, you know, it's been a challenging year from the supply chain point of view, given the number of, you know, infected people that we had in our supply chain and so on. So simplifying our portfolios has been a solution to continue to, you know, have elevated levels of supply to our customers, which has been our focus today. I think as we go forward and consumers move back to more of a normal life and physical stores continue to be a meaningful part of their shopping experience, I think consumers will go back to experimenting a little bit more and they will be looking for innovation and smaller SKUs. We're going to see, you know, small, you know, slow return back to a bit more complex portfolios. But I think we've all learned that maybe the tail of the portfolio was not really delivering the returns that we needed to have for every SKU that we had in the marketplace. So I think there's going to be an optimization of the portfolios. but an increase in complexity as well versus what we have today, even though the consumers will be asking for a bit more experimentation, and especially in our categories where variety is a key driver of purchase.

Our next question comes from the line of Steve Powers of Deutsche Bank.

Hey, great. Thanks. Maybe just two things. First, Hugh, if you could, given the higher CapEx that you mentioned, just your thoughts on free cash flow and free cash flow conversion for the year. I guess I'm thinking that around about 80% free cash flow conversion is a reasonable place to start for the year, consistent with 2020. But just any thoughts you might have as to why that could be materially higher or lower. And then, Ramon, I guess maybe can you talk a little bit about the Gatorade franchise? It had a really strong 2020 behind zero. and other initiatives. And I'm curious to how you're thinking about it into 21. And maybe as part of that, you mentioned it's kind of a sports energy convergence in your answer to Laurent's question. And it looks to me like you're increasingly positioning Bolt24 to play in that area. So maybe you could talk a little bit more about how those lines may be blurring. Thank you. Okay.

Hugh, you want to? Yeah, I'll jump in on this. Obviously, Steve, we didn't give specific cash flow guidance. But I think generally speaking, the profile of our cash flow will be similar to what you saw in 2020.

Great question.

No, hold on. Let me just say a few words on the Gatorade. We're seeing Gatorade clearly growing very fast. Part of it is our innovation, especially Xero has been an amazing innovation. It's crossed the $1 billion retail sales value already for a year. I mean, that's a meaningful, sizable innovation. And we're seeing, obviously, people exercising more, and obviously that's helping us drive additional consumption. As we think about the future of Gatorade, we couldn't be more excited about what we see, obviously, moving into other spaces, like I said, natural. Obviously, you mentioned energy. Those could be spaces. But where we see the biggest opportunity for Gatorade is in creating more of a personalized solution for athletes and kind of amateur athletes like most of us. and creating a much more, you know, engaged relationship where we become advisors of the athletes, of their hydration needs, of all their, you know, their nutrition needs. And we see an opportunity to create much more of a, you know, full ecosystem of engagement with the consumer. We provide solutions, we provide products, and we provide information. And I think that's the real future of Gatorade. which is a massive brand that has so much trust from consumers. I think we can leverage that trust in providing much more than just a liquid hydration.

Our next question comes from the line of Rob Ottenstein of Evercore.

Great. Thank you very much. First, a follow-up question on energy, and that is, can you talk about you know, as you look at your guidance for 2021, how much does your energy strategy bear into it? What is the impact that you're modeling for Rockstar and Mountain Dew on your 2021 guidance? So that's the just kind of follow-up question. And then, you know, the bigger picture question is how do you assess – the impact of people staying, you know, spending more time at home on the snacks business. You know, how much increased demand did you see in 2020 from that, particularly in the U.S., and the likelihood of that continuing? Thank you.

Hugh, you want to start with the energy? Energy? Yeah, happy to. You know, Robin, in terms of being one of the impact items for PB&A, clearly the energy strategy is important to us. And that's broad-based. It's Rockstar. It's what we might do with Mountain Dew. And obviously, Dan is a bit of a contributor as well. In terms of overall PepsiCo, it matters, but I wouldn't call it a make or break type of item for the company this year. If things don't go as well as we expect, I think we've got enough other levers that we'll be fine. it's important for PB&A to be sure.

Yeah, and on the impact of the kind of the new mobility habits on snacks, I would say we've lost a lot of high-profit volume in both the convenience channel and the away-from-home channel. I mean, we always talk about beverages, but snacks had a pretty good impulse and away from home opportunity that we've lost. And that was high margin. On the opposite side, we're obviously seeing more consumption at home, both on kind of indulgence in terms of, you know, kind of at the end of the day, there's, you know, people need a break or during the day, some breaks. And we're seeing more solo consumption, so more multi-pack, small portion formats. At the end, probably a bit of a net positive for the category, but not massively in terms of what we're seeing across the world. Maybe a bit more developed. In developed markets where we have more in-home consumption, maybe a more positive impact. But in developing markets where there's more of an away-from-home consumption, a negative impact. So that's how full company impacts. Those are the drivers depending on how the per capita consumption is built between in-home and out-home on the different locations.

Your final question comes from the line of Chris Carey of Wells Fargo Securities.

Hi, good morning. So I just wanted to follow up a little bit on PB&A and specifically around pricing and promotion, right? So three quarters running of strong net pricing in the division. And I guess, you know, and you can see this showing up in the data as well. I mean, are you getting more comfortable around the concepts of using price as more of a lever in PB&A over time? And then maybe specifically, you know, we're at record low promotions across the categories, including for your portfolio in North America. You know, do you think that you can keep these promotional levels lower, you know, as a strategy? And just, you know, in general, how sustainable you think these low promotions are or whether, you know, we're going to see some sort of reversal in 2021, and that's factored in your outlook. Thanks.

Yeah, I think strategically we see – in the beverage category, trying to understand better the consumer and give the consumer what he or she needs for every occasion with the right pack and the right price. That's a huge lever of growth for our partners, retail partners and for us. So trying to build kind of a profitable growth along the lines of the value we create for the consumer for the particular occasion. That's a big driver of opportunity. I think we're getting better at that at PB&A and globally across the world, understanding the drivers of every occasion and what is best, what is the portion, what is the sizing, what is the you know, what will drive purchasing and consumption. So that's a strategic driver. In terms of the promotional effort, I think we've simplified promotional calendars with our customers everywhere, given the simplification of the supply chain that we had to do. I think we've all learned that there are some opportunities there, but I'm sure there will be a little bit of additional promotional effort as the world opens up again. But I think we've all learned that The relative price of the beverage category in some formats in the U.S., even if you compare it to other markets around the world, was very, very low. So I think there is a strategic journey to make this category a bit more higher valued in general terms. And that's the journey that we are all in. And that will obviously drive additional value for our retail partners and for ourselves.

Ladies and gentlemen, this concludes our question and answer session. I would now like to turn the call back over to Ramon LaGuardia for any closing remarks.

I wanted to thank all of you for your support during the year and for your investment in PepsiCo. And hopefully everybody stays safe and all the best to all of you. Thank you.

Thank you for participating in PepsiCo's fourth quarter earnings question and answer session. You may now disconnect your lines and have a wonderful day.