PepsiCo ramps up R&D in China

14 November 2012

BEIJING: PepsiCo, the food and beverage giant, is boosting its research and development capabilities in China, with the aim of localising its portfolio and increasing the speed to market of new products.

The firm's new innovation center in Shanghai is its largest outside North America and cost over $40m. It will focus on creating goods, packaging and equipment for the local market and Asia as a whole.

"China is a critical part of our global strategy, our growth engine," said Mehmood Khan, PepsiCo's chief scientific officer, Bloomberg revealed. "It makes absolute sense that we do as much of our innovation close to the Chinese consumer and the Asian consumer on the ground."

It also houses a "culinary centre and test kitchens" for adapting or creating recipes to suit national and regional tastes, plus a "pilot manufacturing plant" for rapidly trying out new product ideas.

"The Shanghai facility is a game-changer for our business that we expect will fast forward our innovation throughout the entire region," said Saad Abdul-Latif, CEO of PepsiCo Asia, Middle East & Africa.

PepsiCo's volume sales rose by 9% in China during September, aided in part by sales of bespoke goods made for China, such as cucumber, ice tea, hot and sour fish soup and seaweed flavours of Lay's chips.

Similarly, the company has rolled out Tropicana Xian Guo Li and Cao Ben Le juices, both influenced by traditional medicines, and Quaker Oats for Rice and Quaker Congees, containing ingredients like wolfberry.

Euromonitor International reports that PepsiCo holds 4.4% of China's beverage market, which should reach 71bn litres in size in 2012, double the total five years ago. The snack sector is also due to generate RMB77bn this year, up by 44% on 2008.

In an effort to enhance its position, PepsiCo recently opened a new beverage plant in Zhengzhou and an equivalent facility for Lay's in Wuhan, with increased distribution among its core goals.

"It's hard to find a potato chip or oatmeal west of Wuhan right now, but that's our growth opportunity," Tim Minges, PepsiCo's chairman for Greater China, told the Wall Street Journal. "[We're] developing more locally relevant products that fit into all parts of the day."

Another key component of PepsiCo's bid to improve its standing in China has been an alliance with Tingyi, its local counterpart. The two organisations between them boast over 70 manufacturing sites.

Such a tie-up has also yielded the largest food and beverage system in China with a relative market share of 1.5 or 1.6 compared with the next-biggest player, PepsiCo previously reported.

Data sourced from Bloomberg/Wall Street Journal; additional content by Warc staff