PepsiCo has said its efforts on product innovation contributed “significantly” to its organic revenue growth in the first quarter, supported by a focus on trends of premiumisation and health and wellness.
The Frito-Lay owner said innovations in the health and wellness space as well as capitalising on opportunities to “premiumise” products appear to be paying off. CEO Indra Nooyi said PepsiCo had recently been “future-proofing” its product portfolio and “reshaping it to capitalise on consumers’ increasing interest in health and wellness”.
Last month the firm announced the launch of Quaker Breakfast Flats, which it said, speaks to the demand for “nutritious and convenient morning snacks”. And, a month earlier, in the UK, Sunbites was introduced to the popcorn category, feeding into the demand for whole and multigrain snacks.
The firm treats its health and wellness launches within two separate segments. The first is everyday nutrition – which includes products that provide “positive nutrients” such as grains, fruit and vegetables, and protein. This segment makes up almost 25% of the group’s portfolio by revenue. The second segment is guilt-free products which includes “everyday nutrition products” and snacks with low levels of sodium and saturated fat. Guilt-free products account for approximately 45% of the group’s portfolio by revenue.
“The growth of our everyday nutrition products, which accounts for a quarter of our global net revenue, is outpacing the growth of the balance of the portfolio,” said Nooyi on a conference call with investors in the wake of the group’s first-quarter results. “And we’ve had a significant amount of activity underway to transform our portfolio”.
Pointing to specific product launches, Nooyi said the Smartfood Delight popcorn introduction grew volume 75% in the quarter and reduced-fat Doritos grew volume 30%. She also pointed to the launch of a gluten-free version of its Quaker Oats oatmeal in the US which took place in the quarter.
“Net-net, we feel pretty good about our portfolio transformation efforts,” she asserted.
Within its innovation efforts the group has been looking at ways to premiumise its product portfolio. The launch of its Walkers Market Deli crisps targeting “premium” snackers in the UK is one example.
The focus on growing in the premium product category is something that has been in PepsiCo’s line of sight for some time now as it seeks to respond to “channel challenges” including the shift to value and premium retailers and the emergence of e-commerce options such as walmart.com and Amazon‘s fresh food offering. Premium innovation it hoped would allow it to deliver more price realisation. And it appears to be working, assured CFO Hugh Johnston, alluding to further innovation being planned on the premiumisation front.
“We continue to see a lot of opportunities to premiumise our products. With those premium products come good price points. And once the products are in the marketplace and the advertising and marketing has normalised on those new products, you can expect to see those earn premium margins over time”.
Bonnie Herzog, MD for beverage, tobacco and convenience, at Wells Fargo applauded the firm’s steps in innovating at the premium end.
“We believe PepsiCo is doing a solid job of leveraging its revenue management strategies to drive mix-driven pricing growth and margin expansion in both of these key categories and are encouraged by the ongoing premiumisation shift in both key snack and beverage brands.”