PepsiCo has emphasised its broad reach in the snacking category will help drive long-term growth as it looks to deepen its relationship with the consumer across different “demand occasions”.
The Doritos and Lay’s owner is looking to drive growth of its top 22 brands – which generate revenues of US$1bn or more – while also nurturing the development of its “future billion-dollar brands”, around 40 that produce revenue of $250m-$1bn. The global snacks powerhouse has indicated it is stepping up its investment in innovation and marketing to extend its reach to meet the needs of different consumption moments.
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Speaking yesterday (4 September) at the Barclays Back to School conference, PepsiCo president Zein Abdalla said the breadth of the company’s offering allowed it to appeal to consumers across various target groups, “need states” and occasions.
“We… compete across many, many of what we call consumer demand spaces – whether it’s the breakfast, the mixed breakfast occasion; the mid-morning snack; the afternoon snack; or the early evening indulgence reward, the aperitif, we have a brand proposition whether in a snack or a beverage in a convenient format that can satisfy the consumer demand.”
PepsiCo is building its portfolio around both “treat” and “nutritional” snacking products.
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“[This] allows us to compete across the full spectrum from physiological to emotional needs, from nourishment needs to treat needs and this is incredibly important for us because all consumers have different needs bases across the different day parts that cover that full spectrum,” Abdalla said.
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By GlobalDataIn the past, PepsiCo had “sometimes… misconstrued this as a nutrition consumer and a treat-and-reward consumer”, he continued. “There is no such thing. There is a single consumer who at different day parts or different need stages, in different stages of the development of their life will consume for different targeted reasons.”
PepsiCo has long been pushing to expand its healthy snacking business – a move that has at times met with sharp criticism from investors who have argued the company should remain focused on its core business.
However, in its definition of a “single consumer” for both “treat” and “nutritional” products, PepsiCo would seemingly suggest the healthier snacks brands go hand-in-hand with meeting the needs of consumers who more readily associate PepsiCo with its less health-focused soda and snacks businesses.
Speaking yesterday, Abdalla said the company continues to view better-for-you snacking as a key growth area.
“Looking at it from a category point of view, clearly the good-for-you end of the spectrum has tailwinds rather than headwinds – tailwinds from both a regulatory point of view as well as from a consumer point of view, and we see that as a growth opportunity going forward both defensively and more importantly as an opportunity. So the nutrition category will be a real driver for our growth,” he said.
While PepsiCo expects the nutritional snacking side of its portfolio to benefit from a favourable regulatory environment and growing consumer demand, the group also sounded an upbeat note on the prospects for its other “treat” snacks brands. In its salty snack business, the group will leverage its brands to cater to fresh “demand occasions”, Abdalla continued.
“Global snacks, where we really compete… in salty snacks, has tremendous opportunity to source occasions – those demand space occasions from adjacencies, both in broader savoury snack propositions but as well in broader macro-snack. So salty has a significant growth opportunity for us.”
Another “significant opportunity” is PepsiCo’s drive into developing markets, which now account for more than one-third of revenues, Abdalla said.
The company has driven a ten-point sales shift towards emerging markets over the past six years and the group expects the “lion’s share” of future growth to come from these geographies, he noted.
However, Abdalla again emphasised the breadth of its geographical and category reach meant the company was somewhat insulated from bumps in the road.
“We remain very confident about the role the developing and emerging markets can play in our long-term growth equation. But it is about managing the balance between your developed and developing and emerging markets because they will remain more volatile.”
Analysts at independent advisory firm Fusion Research said the group’s broad spread means its portfolio benefits from a see-saw effect, with softness in US soda being balanced out by the group’s growth in snacks. “PepsiCo can leverage its presence in the snack business and increase its product portfolio to reduce the effects of the soda slump,” the analysts suggested.
PepsoCo’s move to emphasise the reach of its “balanced” portfolio follows long-running investor pressure to spin-off its drinks and snacks businesses.
In July, activist investor Nelson Peltz reignited calls to separate the business – this time suggesting the firm acquire Mondelez international and then merge it with the snacks unit. At the time, PepsiCo rebuffed Peltz’s calls and insisted the group would only look at bolt-on acquisitions with a transaction value of up to $500m.
