PepsiCo’s healthy evolution: Shaking off a salt, sugar and fat laden image

23 Aug 2018 --- PepsiCo is making moves to become a more holistic business focusing on high-growth opportunities in the market such as healthy alternatives, well-being and nutrition, shaking off its old image of brands packed with salt, sugar and fat. A big part of this is the type of products PepsiCo wants to sell in the future and the type of business PepsiCo wants to become – much more focused on sustainability with a socially-minded attitude.

The evolution of the US multinational food, snack, and beverage corporation now includes the creation of The PepsiCo Hive, a new operating entity within the company. It will focus on developing and accelerating growth of start-ups and emerging brands within PepsiCo’s portfolio with strong consumer potential in high opportunity segments in North America.

Outgoing PepsiCo CEO Indra Nooyi, aged 62 who has been with PepsiCo for 24 years and will be replaced with current President Ramon Laguarta, has seen shares rise by 78 percent since taking on the role of CEO in 2006. However, as global consumer preferences continue to shift, agile food and beverage businesses need to keep pace with demand for healthier products by continuing to innovate on brands that appeal to mindful consumers. And although PepsiCo has already started the process of switching focus to high-growth nutrition opportunities, the company clearly wants to do more in this direction.

On top of the launching The PepsiCo Hive, it is buying the manufacturer of home beverage carbonation systems, SodaStream, in a US$3.2bn deal, that demonstrates how the beverage and snacks group is focusing on a health-conscious strategy for growth.

SodaStream aligns with Pepsi’s approach and changing strategy to move away from sugary soft drinks to focus on healthier beverages and snacks. PepsiCo has agreed to acquire all outstanding shares of SodaStream for US$144.00 per share in cash.

Nooyi says acquiring SodaStream is well-aligned with PepsiCo’s philosophy, Performance with Purpose, a pledge to make more nutritious products while limiting the company’s environmental footprint.

Another recent move from PepsiCo came in May when the corporation entered into a definitive agreement to acquire Bare Foods Co. (doing business as Bare Snacks), a US-based maker of baked fruit and vegetable snacks. The transaction will expand the company’s snacking portfolio and again further deliver on its Performance with Purpose vision to offer consumers more positive nutrition options.

Again, Bare Snacks fits perfectly PepsiCo’s vision of making more nutritious products, while also reducing added sugars, salt, and saturated fat.

Healthier snacking
Sugar, salt and fat reduction was also a talking point last week when PepsiCo Mexico said it had cut down on sugar and salt across its snacks portfolio by 24 percent as part of a long-term reformulation strategy designed to reduce added sugars and sodium across products.

Sodium has also been slashed by almost a quarter and levels of saturated fat have been reduced in popular brand Cheetos, while other brands have been reinforced with vitamins and minerals and whole grains have been added to Quaker products.

PepsiCo said it has changed all the oils of the Cheetos brand and now the level of saturated fats is “almost non-existent.” Formulations across the product portfolio are also being adapted to better reflect the new preferences of consumers, said Paula Santilli, president of PepsiCo Alimentos México.

How will The PepsiCo Hive support sustainability goals?
The establishment of The Hive will help PepsiCo deliver on its so-called Performance with Purpose goals of continuing to transform its portfolio in order to meet changing consumer needs and deliver sustainable, long-term growth, according to the company.

It will nurture and grow smaller, existing brands within its portfolio including Maker Oats, Stubborn Soda and Looza fruit nectar beverage; new brands in developing, high-opportunity spaces; and inorganic concepts still building momentum and critical mass.

The new team will source agile talent both internally and externally to build sustainable value propositions for these developing brands, drive scale of operations and distribution over time. The aim is to eventually transition brands into the larger PepsiCo system once scaled.

“We continue to learn a great deal every single day from our own innovation and experimentation experiences, from unique external partnerships we’ve crafted and from observing entrepreneurial food and beverage companies both large and small,” says President of PepsiCo North America Nutrition Seth Kaufman, who will oversee the The Hive in addition to continuing to lead PepsiCo’s North America Nutrition business.

“We will channel that experience in this team to act with the agility of a small company, but with access to the knowledge, scale and resources of PepsiCo.”

“Rapidly adapting to changing consumer needs in a sustainable way includes fundamentally new operating models, and I could not be more excited to launch this important new group for PepsiCo.”

Staying ahead of the curve
PepsiCo says that the Hive will build capabilities to stay ahead of what consumers want and make sure operating and distribution models are flexible while also using robust data analytics for informed foresight.

The Hive intends to build a solid growth portfolio of new platforms in on-trend and emerging food and beverage spaces, through multiple approaches, including:
- Rapid new product development, iterative prototyping and marketplace deployment, leveraging its world-class R&D talent to delight consumers and incubate new platforms like PepsiCo has done with Stubborn Soda and Maker Oats.
- Using an “open-source” innovation and incubation model with external partners who develop products and propositions on PepsiCo’s behalf and with its guidance.
- Further accelerating select brands acquired through the PepsiCo Ventures Group, which has been investing in and acquiring high-opportunity platforms like KeVita, a leading creator of sparkling probiotic drinks, kombucha beverages and apple cider vinegar tonics.

“We’re formalizing a venue to embrace the agile mindset of a startup by giving this team independence and leeway to rethink what exists today while still being able to call on the tremendous resources of PepsiCo,” added Kaufman. “This is how we’ll deliver on consumers’ changing preferences and the fast-moving landscape like never before.”

An incubator revolution

PepsiCo isn’t the only business looking at start-ups to tap into growth opportunities, with many major players involved in this space.

For example, this week, foodservice firm Chipotle has announced a new accelerator for ventures that are “changing the food landscape to make the world better.”

The Chipotle Cultivate Foundation will sponsor the first Chipotle Aluminaries Project, a seven-month-long accelerator program designed to help growth-stage ventures with a shared vision to take their businesses to the next level.

Beginning September 12, food-focused companies may submit applications to join a cohort of ventures that will receive mentorship and direct coaching from world-renowned industry leaders, participate in a boot camp, receive a Chipotle celebrity card and be fueled by Chipotle catering throughout.

“Chipotle has been committed to the future of food with integrity since opening our first restaurant 25 years ago,” says Brian Niccol, Chipotle CEO. “Since then, Chipotle and its Foundation have changed how customers and the industry think about food, which is part of our mission to cultivate a better world.”

“By sponsoring the Chipotle Aluminaries Project, we’re looking to advance the work of the next generation of entrepreneurs who are disrupting the food landscape. Are you using technology to make an impact? Are you dreaming up the next sustainable food innovation? If so, we want to support you and help share your story.”

The Chipotle Aluminaries Project is seeking applicants (both for and non-profits) in the areas of alternative farming and growing systems, farming and agriculture technology, food waste and recovery, and plant and alternative products.

By Gaynor Selby

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