PepsiCo plans innovation drive

11 October 2010

NEW YORK: PepsiCo, the food and beverage giant, is planning to focus on innovation, emerging markets and enhancing its nutrition business as a means of driving growth.

The company posted a 2% uptick in volume sales for snacks, and an 11% increase for beverages, during the last quarter, and is currently implementing a variety of long-term initiatives.

Such ambitions include tripling its annual nutrition revenues from $10bn (€7.1bn; £6.2bn) to $30bn by 2020, to which end PepsiCo has established a new nutrition centre, to be based at the organisation's Chicago office.

This move forms part of a broader aim to "position PepsiCo globally as a leader in wholesome and convenience nutrition," said chairman/ceo Indra Nooyi on a conference call.

She suggested that high-quality brands like Quaker, Tropicana and Gatorade give PepsiCo a head start in the rapidly-developing health and wellness segment.

"[We will] leverage our great portfolio brands across four target platforms - fruit and vegetables, grains, dairy and functional nutrition - to put PepsiCo in a uniquely advantageous position to win in the $500bn global market for packaged nutrition," she added.

Dr Mehmood Khan, PepsiCo's chief scientific officer and head of corporate R&D, has been named chief executive of this unit, reporting directly to Nooyi.

His brief encompasses the remit to "collaborate with businesses across the globe to ensure rapid growth of our nutrition portfolio," said Nooyi.

More specifically, Khan will champion innovation for food, drinks and a range of related services, with an emphasis on "education and incentives to help consumers change and sustain behaviours."

Gatorade has shown sports nutrition is one attractive category, but PepsiCo's objectives incorporate extending its reach into as yet untapped sectors.

Nooyi stressed that economic uncertainty and rising unemployment levels were hampering a "consumer-led recovery" in many regions where PepsiCo operates, particularly the US and Western Europe.

However, she also noted that the recent launch of the firm's first mainstream natural carbonated soft drink, Sierra Mist Natural, "allows consumers to have what they love about CSD's while removing some key barriers."

PepsiCo distributed over 10m cans of Sierra Mist at Wal-Mart superstores throughout the US, backing this hand-out with a multimedia advertising campaign.

According to Nooyi, this programme constituted the biggest sampling event either company had undertaken.

In addition, PepsiCo backed Sierra Mist with "a full year's worth of marketing support in the fourth quarter of 2010 with continued heavy support in 2011," Nooyi continued.

This strategy is symptomatic of PepsiCo's overarching agenda, moving beyond simplistic measures to deliver sustainable future expansion.

"We are looking around the world, and wherever we see the opportunity, we are ramping up … investments," said Nooyi.

"Just remember, the international market is not like the United States where you get a return within the quarter. It does take two, three, four years before the top-line starts ramping up in a meaningful way."

Such a description most clearly applies to emerging markets, which have assumed a greater importance in the recession but still require a nuanced approach.

"When you spend in China ... you are not going to get the profitability impact in the next 12 months or 24 months," Nooyi argued.

"We are still in a massive investment mode in China ... (and) when we step up investment in India, you are not getting the returns right away."

"But it's a must-invest market because the demographics and the fact that per capita levels are so low gives you many years of growth."

Data sourced from Seeking Alpha; additional content by Warc staff