Pepsi’s Path To Healthier Living

Everyone has at least heard of, and probably drank a product of, the company PepsiCo (PEP).  It is one of the biggest food and non-alcoholic beverage companies in the world and is a direct competitor to the equally popular brand, Coca-Cola (KO). PepsiCo is known for producing, distributing, and marketing products such as Pepsi, Mountain Dew, Cheetos, and Doritos.  Of these, the name that is most often associated with the company PepsiCo is Pepsi.  Pepsi is a carbonated, sugary, artificially flavored soda that has been extremely popular since it was first introduced in the early 1900s. However, with the recent push by consumers for healthier, non-carbonated options, PepsiCo is struggling to change its image and position itself as a major player in the non-carbonated beverage and healthier food market. Now, PepsiCo is facing the problem of marketing the company in a new direction to keep them successful without changing the overall face of the company.  The company has started to make progress, and has plans set forth to continue this change into the future.

So What’s the Problem?

PepsiCo is a leading company in the food and non-alcoholic beverage industry that now faces the problem of marketing a new style of snack and beverage.  It is responsible for producing, marketing, and distributing numerous popular brands.  Its 2007 revenue of $39.474 billion was higher than both Coca-Cola and Kraft (KFT) for the year. However, PepsiCo faces a new challenge: becoming a major player in the market of healthier snacks and beverages.  It is no secret that people are moving more and more towards healthier food and beverage items.  There is a new product out seemingly every day and new stores are being opened all the time that focus on this market.  PepsiCo is faced with this innovation problem as it hurries to position itself as a leading provider of healthy snacks and beverages.  If the company is unable to do so, then it will undoubtedly suffer significant revenue decline in the coming years.  On top of this, the company needs to maintain the same prestige that it has held for so many years while making this transition.  The company has to market its new products both quickly and efficiently to convince consumers that it is a leading provider of healthier alternatives.  Truly, Pepsi is not there yet. However, their success to date makes one believe that they will not have many problems moving into the future.

How Do They Address It?

PepsiCo has a long way to go, but they have already started down the right path.  Earlier this year in February, the company announced the release of “Pepsi Raw” in the United Kingdom.  It is made of all natural ingredients such as apple extract and coffee leaf and has reduced the calorie content for a 300ml bottle from 120 calories to 90 calories.  On top of this, the lower sugar content is overall healthier and less harmful to one’s teeth.  Although it remains to be seen how successful this product will be, it is a positive sign that PepsiCo has developed a completely new beverage to cater towards those that seek healthier options.

Apart from developing new beverages, PepsiCo has made an effort to gain significant market share in the healthier snacks market.  They have done so with a number of products such as Sun Chips and baked chips.  Sun Chips contain very little sodium, 18 grams of whole grain, and 30% less fat than the typical potato chip.  This has been met with extreme praise and success so far in the United States.  Sun Chips delivered double digit volume growth in the United States in 2007 and looks to continue this into the future.  Another healthier alternative are baked chips compared to the typical fried ones.  Baked Walkers crisps contain 70% less fat and only 90 calories per pack.  Consumers’ reaction to this product has been unanimous, as Baked Walkers crisps was named the “New Product of the Year” by Marketing Week magazine in the United Kingdom.  This is a great honor and shows that PepsiCo is headed in the right direction in terms of new product development.

Pepsi also understands the importance of marketing this new alternative.  They spent $2.9 billion in advertising and marketing in 2007.  This is a 7.4% increase from the year before, and can be expected to grow this year and in 2009.  CEO Indra Nooyi discussed in the company’s most recent conference call her plan to launch a new campaign in 2009, which is aimed at redoing PepsiCo’s image toward healthier items.  It will be interesting to see how they do this and what impact it will have on the company’s success in the healthier beverage and snack industry.

Will They Be Successful?

Producing a successful product is only half the problem for a company in the food and beverage industry.  The other half is marketing the product and convincing customers that it is the best product one can buy.  The company needs to convince customers that it is still the same extremely successful corporation that it has always been, while shifting the entire focus of the company.  PepsiCo has had no problem making this transition so far, and is positioned extremely well to continue this success into the future.  When the company reveals its new marketing strategy at the beginning of 2009, it will be interesting to see how people react to it.  If Pepsi is able to market its healthier products effectively, then it is fair to expect this company to continue its greatness even as consumer tastes and preferences are changing.

Disclosure: The mutual fund the author is associated with is long KO.

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