PepsiCo plans new product push in China

25 May 2010

SHANGHAI: PepsiCo, the food and beverage giant, is set to launch a wide range of new products in China as part of a major investment drive in the country.

Having directed $1bn (€800m; £691m) in funding to its Chinese operations between 2008 and 2010, the US firm has now outlined plans to spend a further $2.5bn in the Asian nation over the next three years.

"This investment reflects very clearly our great confidence in China and our long-term commitment to this very important, growing market," Indra Nooyi, PepsiCo's ceo, said.

"We look forward to continuing to evolve our business in China and offer Chinese consumers a full portfolio of foods and beverages ranging from soft drinks and juices to oatmeal and savoury snacks."

PepsiCo has previously introduced several brand extensions tailored specifically for Chinese shoppers, like Tropicana Guo Bin Fen fruit juice and Cao Ben Le drinks, which are "inspired by" traditional medicines.

Similarly, it sells Quaker Oats cereals in a number of distinct flavours and has added cool cucumber and crispy prawn variants of Lay's crisps.

In a bid to "accelerate" this process, the company is establishing a research and development hub in China, which will take responsibility for this kind of targeted activity for Asia as a whole.

Moreover, it will open up to 12 plants and five farms in China in the next three years to strengthen its business throughout the production cycle.

"We are building expertise and infrastructure now so that we can have a strong, sustainable manufacturing and agricultural base to serve the diverse and growing needs of consumers across China," said Nooyi.

Coca-Cola has recently announced its intention to construct another three factories in China in 2010, as part of an on-going $2bn local investment programme.

Having seen its effort to buy the Huiyuan Juice Group for $2.4bn in 2009 blocked by the Chinese government, Coke has adapted its strategy, taking an in-house approach to enhancing its stable of products.

It unveiled an innovation and technology centre in Shanghai in 2009, which has since begun rolling out new offerings such as Minute Maid Super Pulpy.

"We have seen so many organic growth opportunities in China, and, right now, we are focusing on them," said Muhtar Kent, Coca-Cola's chief executive.

Not only has China rapidly assumed the position as Coca-Cola's third largest global market, but it is also the company's fastest-growing regional outlet, and Kent suggested these trends would continue to gather pace.

"China will be the largest [market] in a fairly short period of time and will top growth results for the next ten years," he argued.

Figures from Consumer Edge Research show that Coca-Cola took a 15.7% share of the soft drinks category – when taken to include all non-alcoholic beverages – in China in 2008, with PepsiCo on 7.2%.

Among the most prominent domestic players is Master Kong, which held 48.4% of the iced tea segment and 19.6% of bottled water sales last year, according to ACNielsen.

The Taiwanese corporation also took 14.2% of the fruit juice sector in 2009, where it was ranked second behind the Huiyan Juice Group.

Wei Ing-chou, the chairman of Master Kong, predicted in November 2009 that its revenues would increase by at least 30% annually over the next five years as China maintained an impressive rate of economic expansion.

Data sourced from PepsiCo, Reuters, Forbes, MarketWatch; additional content by Warc staff