Despite being most renowned for their sugary drinks, PepsiCo is looking to target a health-conscious audience with their new range of vegetable crisps, Off the Eaten Path. They’re made with rice, black beans and green and yellow peas. It follows a trend for other similar products as customers look to move away from high-fat, salty potato crisps.
The CFO of PepsiCo, Hugh Johnston has predicted that their nutritious products will “come out on top”, with retailers now heavily pushing healthier offerings to their customers. Nutritious products have risen to cover around 25% of PepsiCo’s revenue, which is up by 5% from a few years prior. There’s every chance it will work for them.
However, launching nutritious products can be challenging; along with starting from scratch, there’s the fact they can be more costly to develop and harder to scale up. The advantages on PepsiCo’s side is that they’re able to invest heavily in innovation thanks to having more than $60 billion in revenue, can scale up easily, and will be able to keep the profit margins for their healthy products within the same line as the rest of the business.
PepsiCo are able to invest heavily in innovation, can scale up easily, and will be able to keep the profit margins for their healthy products within the same line as the rest of the business.
This isn’t the company’s first foray into a healthier market. In 2007 PepsiCo launched a chip line called ‘Flat Earth’ which promised consumers at least half a serving of fruit or vegetable in every ounce. It was hoped that it would generate around $100 million in sales in the first year, but the reality was more like $50 million. As such, the brand was considered unsuccessful and was discontinued when faster-selling chips outsold them.
They then tried to resurrect a vegetable chip line a few years later, but there were yet more hurdles. This included worries about making misleading health claims, and adding more vegetable content to the chip. However, in doing this it lowered margins, and the project ultimately stalled during a series of reviews of the product idea and production process.
PepsiCo has also been looking to find sugar substitutes for their drinks that will help to lower their calories and other negative health claims. However, while they have looked into using Stevia, which is a zero-calorie natural sweetener, this leaves a bitter after-taste. In 2015 PepsiCo tried to make another change by swapping aspartame for sucralose in their drinks, which is another artificial sweetener. However, their sales plunged and saw Diet Pepsi return with the much-criticised aspartame. For the company, it’s very much a continuous process of trial-and-error.
Changing habits takes time, and it’s about re-writing social behaviours…
It’s also a delicate balance of what customers want – many say they want to be healthier, but still typically veer towards sugary drinks or traditional chips. Changing habits takes time, and it’s about re-writing social behaviours (such as groups of friends sitting around snacking on junk food and fizzy pop on a Friday night rather than hummus and green juices). Off the Eaten Path isn’t the only health-focussed brand under PepsiCo, and the brand also has an expanding list of other names under their umbrella including Quaker oatmeal, Naked juice and Sabra hummus.
However, the goal it set during 2010 to triple their revenue in nutritious products to $30 billion this decade has fallen short. They have now set a new goal for 2025, which is for the sales of their nutritious products to “outpace” the rest of their portfolio. PepsiCo have also set themselves the challenge of reducing the sugar, sodium and fat in their other products.
One of the great tactics they have in their arsenal is that they’re able to work with many of their existing and successful brands to help increase how beneficial these are for customers. It has much more potential for success than launching a new spinach or chickpea brand. It’s a profitable market to be in – in the US, sales of natural and organic foods and beverages grew by 23% to $41 billion between 2014 and 2016. However, according to retail tracker Spins, this is a small slice of the overall sales in the country of $425 billion. There’s still room to grow, but challenges lie ahead. Many large food retailers are now looking at ways to improve their nutritious food offerings, identifying the increasing trend globally for these products. However, it’s not just about producing the products, but also getting customers on board as loyal buyers. Otherwise, they’ll just get pulled.