The Pepsi challenge: Healthy people, planet, profits
Can the soda company execute on all three legs of the sustainability stool? It's an open question. Read More
Let’s be honest. Consumers enjoy soft drinks and chips because they taste good, not necessarily because they are healthy. Consumer products multinationals have been wrestling for years with the conundrum of how to transform a business model that profits from sales of sugary snacks and carbonated beverages in an era of increasing health consciousness.
At the same time, consumers are looking for a wider range of food and beverage choices than ever before, with a growing focus on health and wellness. For a company like PepsiCo, this represents a significant opportunity to generate new sales and attract new consumers – whether by reformulating products to reduce salt, fat and sugar content, or by expanding the company’s already large nutrition portfolio.
Health and wellness is not new territory for PepsiCo, which acquired Tropicana is 1998 and Quaker Oats in 2001. Today, PepsiCo’s global nutrition portfolio represents approximately 20 percent of PepsiCo’s sales. PepsiCo’s goal is to grow its annual revenues from nutritious and functional foods to $30 billion by 2020, up from $10 billion in 2010. Given the world’s twin challenges of obesity and malnutrition, as well as an aging population and growing consumer demand for health and wellness, offering a greater selection of healthier options makes smart sense.
In 2006, after taking the helm of the company she first joined in 1994, PepsiCo CEO Indra Nooyi introduced Performance with Purpose, the idea that the short- and long-term, sustainable success of the company can be aligned to what is good for society. One plank of Performance with Purpose is to expand PepsiCo’s product portfolio to meet the changing needs of consumers who are concerned about their diets and are seeking more nutritious options – while also growing PepsiCo’s volume and revenue.
PepsiCo’s numbers over the past five years show that it’s well on its way to fulfilling this vision. From 2007 to 2011, PepsiCo outperformed the S&P 500, achieved double-digit compound annual growth, and returned over $30 billion to shareholders. At the same time, the company made significant investments in R&D, launched a variety of successful new products and expanded into growing new categories like dairy – all moves that support PepsiCo’s long-term nutrition goals.
Given that PepsiCo foods and beverages are consumed nearly one billion times each day in nearly every country around the world, any advances toward improving nutrition and sustainability can have a significant impact on public health.
“There is growing consumer demand for health and wellness offerings, and this trend is projected to continue in the future,” said Jeff Dahncke, PepsiCo senior director of communications. In the past 15 years, the company has lowered the average number of calories per serving in beverages by nearly 20 percent. Today, half of PepsiCo’s beverage sales in North America come from low calorie beverages, active hydration beverages and healthy juices.
Beyond improving the nutrition of its most popular products, PepsiCo’s global nutrition portfolio is comprised of a diverse mix of brands, including the category leader in key areas such as juice (Tropicana), oatmeal (Quaker) and sports nutrition (Gatorade). Other brands in PepsiCo’s portfolio in the U.S. include Naked Juice, Muller yogurt, Sabra hummus and Stacy’s pita chips.
Dahncke pointed to Tropicana’s Trop50 as an example of an innovative product that has allowed PepsiCo to satisfy an unmet consumer need. “Trop50 is for people who want the goodness of juice but with 50 percent less sugar and fewer calories,” he said. “It not only satisfies that need, but tastes great and offers sought-after nutrients such as vitamins C and E. It has been a highly successful brand since being launched in 2009.”
Dahncke noted that the company did not change Tropicana Pure Premium. “Tropicana Pure Premium is and will continue to be 100 percent OJ with no added water or sugar,” he said. “What these two different products demonstrate is how our Tropicana brand can offer a great product for the customer who loves 100 percent OJ, as well as for the person who prefers something a little lighter.”
PepsiCo regards its investment in a strong global R&D organization as part of its growth strategy and a way to bolster competitive advantage. “Our new Fruit and Vegetable Innovation Center in Hamburg serves as a global center of excellence for PepsiCo and is accelerating our fruit and vegetable R&D efforts to help create a future pipeline of innovation for our nutrition brands,” Dahncke said. “We also opened a food and beverage R&D center in Shanghai late last year, which will serve our Asia entire region and support the broader PepsiCo R&D organization.”
“The success of recent new products like Trop50, Quaker Real Medleys and Pepsi NEXT shows that we can offer healthier options in ways that maintain the great taste, convenience and value our consumers expect from PepsiCo brands.” In reality, most consumers seeking healthier offerings don’t want to sacrifice taste, convenience or value. “It’s important we get the total equation right,” said Dahncke.
Next page: Promoting healthier habits
Consumer products companies are using R&D to find innovative ways to develop products, but addressing public health issues is a two-way street. To help consumers make healthier decisions, PepsiCo is participating on several campaigns. The company says:
- “We’re part of the Clear On Calories initiative in the U.S.
- “We’re also part of the Healthy Weight Commitment Foundation, a national effort designed to help reduce obesity—especially childhood obesity—by 2015.”
- “We voluntarily implemented school beverage guidelines as part of a policy developed in partnership with other beverage companies, the American Heart Association, and the Alliance for a Healthier Generation. This initiative has dramatically reduced calories in beverages shipped to schools. And we now display calorie counts on the fronts of many of our packages, something we are working to expand around the world.”
At the base of the pyramid, PepsiCo aims to offer consumers in the developing world more nutritious protein-based snacks and beverages. As an example, Project Asha concentrates on low-income communities in India to provide iron nourishment through snacks that are equivalent to five bundles of spinach apiece.
Planet-Healthy Packaging
Another plank of Performance with Purpose is environmental sustainability, which GreenBiz has covered extensively.
“We continually think about new ways to package and deliver our products in ways to reduce our operating costs and minimize our environmental impact,” said Dahncke. While some early innovations to make products greener required additional work, such as Frito Lay’s SunChips’ widely-publicized compostable bag that turned out too loud for midnight snacking, such experiments are a natural result of an innovative culture.
PepsiCo continues to lead in innovation in sustainable packaging by working with suppliers. “Our goal is to use the most environmentally suitable packaging available in the country of operation, wherever we operate,” said Dahncke. “We have reduced packaging weight by more than 300 million pounds since 2007.”
PepsiCo is investing heavily in R&D initiatives to make bottles and caps with less plastic but the same durability. For example, to reduce emissions and fuel costs in transportation, PepsiCo, which used to purchase bottles from other companies and ship to production facilities, has since figured out a way to use small pre-forms and blow out bottles as part of “on-demand” production, where there is less need for storage.
“We’ve also been able to meet growing consumer demand for healthier products in ways that also support our environmental, agricultural and supply chain goals,” said Dahncke. “Our partnership with the Inter-American Development Bank to grow sunflower crops in Mexico is a great example of how business and societal interests can be aligned through public-private partnership.” PepsiCo represents one of largest agricultural enterprises in the world, so measures taken to conserve water and track emissions have the potential to move the needle in terms of global sustainability.
Of course, sustainability cannot really be achieved without improving health and nutrition. With 20 percent of America’s health care costs paying for obesity-related expenses, we may all benefit if PepsiCo succeeds in its goal of reaching $30 billion in nutritional products by 2020. The question remains, will consumer demand for nutritional foods – and investors’ patience for transformational strategies – grow at the same pace?
“PepsiCo has a heritage of being able to transform and perform at the same time,” said Dahncke. “We believe wholeheartedly in a diversified portfolio and offering a broad range of great-tasting food and beverage products that meet the needs of our consumers today, tomorrow and well into the future.”
