In a boost to its health initiatives, PepsiCo recently announced new targets to reduce calories and sugar in its beverages, and salt and fat in its snacks, by 2025. As it adapts to changing consumer preferences, PepsiCo believes that healthier products will be key for long-term growth, and the company is looking at several ways to make its portfolio of products healthier. From organic Gatorade to offering probiotic health drinks and lowering sugar in its beverages and salt in its snacks, these initiatives are aimed at driving sales amid a growing base of health-conscious consumers. According to the company, its “everyday nutrition” products will witness the fastest rate of sales growth by 2025.
Key Driver Of Growth
A key driver of PepsiCo’s revenues in Q2 2017 was its portfolio of healthy snacks and beverages. As PepsiCo works towards transforming itself to adapt to the changing customer preferences for healthier lifestyles and aims to limit its environmental footprint, the company has adopted a motto of “Performance with Purpose.” In order to meet the evolving needs of customers globally, the company is shifting its portfolio to a wider range termed “Everyday Nutrition Products.” These products contain nutrients such as grains, fruits, vegetables, or protein. This portfolio falls under the broader category of “Guilt Free Products”.
Emphasis On "Guilt Free Products"
PepsiCo now derives approximately 45% of its revenues from “Guilt Free Products,” indicating that it has transformed its portfolio towards healthier products according to customer preferences. With the growth of its beverage business slowing down as a result of sluggish soda sales, this segment will be a focus for the company in the future to drive its sales. Frito-Lay is also pushing towards some more premium products to fuel its revenue and margin growth. By concentrating on premium brands, there could be a shift from low-priced, high-volume products - where volumes are slowing - to higher-priced, lower-volume products, which could boost margins.
Expansion Into Whole Foods
According to a report by Bloomberg, Frito-Lay, PepsiCo’s snacks division, is aiming to break into organic stores such as Whole Foods with its new line of products without artificial ingredients, marketed under the name ‘Simply.’ These include organic versions of 11 core chip brands, including Doritos, Lay’s, Cheetos, and Tostitos. According to PepsiCo executive Jonathan McIntyre, these products meet the requirements needed to be sold in Whole Foods. Such a move is part of a concerted effort taken by the company to improve its brand given the shift in consumer preferences towards natural and organic products.
The acquisition of Whole Foods by Amazon could not have come at a better time for PepsiCo, as the former may not have accepted the presence of brands such as Doritos in its stores in the past. This is not only due to the junk food image of Doritos, but also due to Whole Foods’ aversion to products sold by big consumer packaged goods companies. The acquisition could change things in the future, though that certainly remains to be seen.
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