For PepsiCo, the future does not just lie in snacks and soda.
The US food and beverage giant, home to brands like Pepsi, Lay’s and Walkers, has made a series of announcements this year about its ambitions to build its presence in healthier areas of the market. In February, PepsiCo announced an aim of tripling its sales of healthier products. In March, the company said it would reduce the amount of salt, saturated fat and sugar in its portfolio. And last week, the group unveiled plans to set up a business unit focusing squarely on nutrition and targeting sectors like fruit, vegetables and dairy.
In the face of growing regulatory pressure to make food healthier, food executives often talk vaguely about their company’s health credentials but PepsiCo chairman and CEO Indra Nooyi has been consistent in her focus on the business benefit the group’s moves will have.
As Nooyi laid out PepsiCo’s plan to set up its nutrition arm, the company was also announcing that it had trimmed the top end of its earnings guidance for 2010. The change surprised analysts and dented PepsiCo’s shares but Wall Street would do well to remember that, although the company’s investment in areas like health may weigh on earnings growth in the short term, Nooyi and her team are looking to position the business for long-term growth.
Demand for products like high-sugar fizzy drinks and salty snacks are already showing signs of waning not just in the West but also in emerging markets. For instance, research newly commissioned by just-food shows that countries like India and China will be key drivers of the growth of the global market for healthy snacks as we move through the decade. By positioning PepsiCo to focus more on health and wellness, Nooyi has a better chance of securing the long-term prosperity of the business.
Of course, for all PepsiCo’s might, sectors like dairy are already populated by some entrenched – and well-resourced – players. Last week, FrieslandCampina, the Dutch dairy giant behind brands like Yazoo milkshake and Milner cheese, announced plans to build a research and development site in the Netherlands to focus on dairy drinks, branded cheese and infant nutrition.
The investment is part of FrieslandCampina’s plan to grow the volume of “added-value” products it sells by an average of 5% a year. FrieslandCampina is the world’s fourth-largest dairy processor; the sector is also home to multinationals like Nestle, Danone and Lactalis and PepsiCo will face fierce competition from some huge players.
Some 900km south of FrieslandCampina’s proposed R&D site, Kraft Foods opened its own research centre last week. The site, in the Swiss town of Eysins, was conceived by Cadbury before the UK confectioner was snapped up by Kraft earlier this year. The US food giant said the R&D facility would focus on developing gum and candy products under brands like Halls and Trident and would be a key part of its bid to continue the “momentum” it is seeing from its snacks business in Europe.
Forty-eight hours after Kraft’s European management team officially unveiled the gum and candy site, its global chairman and CEO Irene Rosenfeld made her first visit to Bournville, the UK town where Cadbury was founded, since the US firm’s GBP11.5bn (US$18.32bn) takeover of the business. Rosenfeld’s visit had been flagged up for days in the UK press, parts of which had criticised the Kraft takeover and had accused the business of a U-turn on a pledge to keep open Cadbury’s Somerdale production site in south-west England.
By the time Rosenfeld had left the UK, Kraft had again attracted negative headlines over her refusal to rule out further closures beyond a two-year commitment the company has already made on sites in the country. However, given the ire directed at Kraft over the Somerdale plant – which included company executives appearing before Parliament – it was perhaps wise of Rosenfeld not to make any further commitment just yet.