Dairy, fruit and veg. On the face of it, these products seem a world away from the carbonated soft drinks and crisps that have long been core to PepsiCo’s business.
However, the US food and beverage giant is set to make a serious move to grow its presence in the healthier areas of the market.
Last week, the group unveiled plans to set up a business unit focusing squarely on nutrition and targeting sectors that are relatively untouched territory for PepsiCo.
Demand for high-sugar fizzy drinks and salty snacks is waning in the West and consumers in emerging markets, particularly in the key middle-class demographic, are also showing signs of wanting healthier variants. For instance, research from just-food shows that India and China will be drivers of the global market for healthier snacks during this decade.
By positioning PepsiCo to focus more on health and wellness, Nooyi has a better chance of securing the long-term prosperity of the company.
That said, the “nutrition” element of PepsiCo’s stable is already a substantial business in its own right. The company claims its nutrition operations, home to brands like Quaker and Tropicana, already generate US$10m in annual sales. PepsiCo’s ambition is to triple those revenues in ten years.
Quaker and Tropicana are likely to be key planks in PepsiCo’s plan. When PepsiCo announced the creation of the “global nutrition unit” last week, the company’s ambitions in dairy, fruit and veg caught the eye. However, the group also included “grains” in its plans and, in Quaker, they have a global brand upon which to build.
In the UK, Quaker is driving PepsiCo’s growth as we speak. Speaking to the BBC last week, Richard Evans, the head of PepsiCo’s operations in the UK and Ireland, said the brand was among the fastest parts of its business. “If you look at that business the fastest growing parts of it are actually juice and grain and Quaker Oats,” Evans said.
PepsiCo’s announcement last week was just the latest in a series the company has made in the last 12 months, from the establishment of an R&D facility in the US to “fundamentally improve” the nutritional profile of its products to the creation of new targets to lower the amount of salt, saturated fat and added sugar worldwide.
The company’s UK arm made its own announcement this spring that fit the group’s overall strategy. “In March, we published a health report that said the kind of business we wanted to be by 2020, which is one primarily based around fruit, veg and grain,” Evans said. “The reason we’re doing that is because consumers want healthier choices.”
Of course, any moves to develop a business is a risk – even in what could be deemed to be a company’s area of expertise. Last month, PepsiCo UK and Ireland said it had pulled Pepsi Raw, a product that had been billed as a “natural” alternative to Pepsi cola. The company blamed a poor performance in the UK supermarket channel.
There is an inherent risk to innovation and, as PepsiCo looks to build its nutrition business, some products will inevitably fail. But, as Evans told the BBC, perseverance is vital.
“It’s about trying. There are loads of products that lots of companies have brought to market and haven’t worked. The trick is [to ask] what did you learn from that? We learned that it wasn’t differentiated enough versus what we sell every day, so consumers told us in unequivocal terms that that wasn’t quite what they were looking for. It’s about going back and trying again.”
Within the categories PepsiCo is now targeting, there are some well-entrenched players with huge resources. Within dairy, just last week Dutch dairy giant FrieslandCampina announced plans to build a research and development site in the Netherlands to focus on dairy drinks, branded cheese and infant nutrition.
Dairy processors like FrieslandCampina are waking up to the potential of “added-value” categories like dairy beverages and see these markets as vital to their future growth. Competition for the likes of PepsiCo will be intense.
Perhaps joint ventures could be a potential avenue for PepsiCo. The company has already teamed up with Saudi Arabian dairy firm Almarai Co. to target markets in south-east Asia, Africa and parts of the Middle East and the venture has since bought a dairy processor in Egypt and acquired majority control of a dairy firm in Jordan.
However, as with innovation, joint ventures carry an element of risk. Partnerships can turn sour. Moreover, while partnerships like the deal with Almarai positions PepsiCo strongly in certain emerging markets, the US firm’s ambition to triple its “nutrition” sales could demand a strategic move on a larger scale.