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Can PepsiCo’s New Products Speed Up Sales Growth in 2015?

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Innovation

PepsiCo (PEP) is making significant investments in the development of new products in both the food and beverage categories. In May 2015, three of PepsiCo’s new products received the 2015 Nielsen Breakthrough Innovation Award. They include the following:

  • Mountain Dew Kickstart
  • Müller yogurt
  • Tostitos Cantina tortilla chips and salsa

PepsiCo’s research and development costs increased by 7.9% to $718 million in fiscal 2014. PepsiCo’s new products accounted for 9.0% of its net revenue in fiscal 2014. The company is putting more emphasis on healthier options. PepsiCo’s nutrition products contributed about 20% to the company’s fiscal 2014 net revenue.

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New products in food category

According to Mintel, a market research firm, the US chips, salsa, and dips category was worth an estimated $14.8 billion in 2014. It’s expected to touch $17.4 billion by 2019. PepsiCo can capture this growth opportunity with its strong portfolio, which includes brands like Lay’s and Doritos.

PepsiCo’s recent innovations in the snack food category include Doritos Jacked 3D Bacon Cheddar Ranch snacks, Doritos Roulette chips, Quaker Quick 3-Minute Steel Cut Oats, and gluten-free varieties of Quaker Popped Rice Crisps.

Innovation in beverages

In May 2015, PepsiCo launched Pepsi Limon, a new flavored cola catering to the preferences of Hispanic consumers. PepsiCo also launched four new flavors under its AMP Energy drinks brand. PepsiCo’s energy drink brands compete with Monster Beverage (MNST), which now owns Coca-Cola’s (KO) energy drinks portfolio following the completion of their deal on June 12.

Dr Pepper Snapple (DPS) lacks a strong presence in the energy drinks market. Beverage companies make up more than 19.8% of the portfolio holdings of the Consumer Staples Select Sector SPDR Fund (XLP).

Other beverage innovations include Naked Juice Chia Cherry Lime and Chia Sweet Peach, Tropicana Farmstand Tropical Green, and Mtn Dew DEWshine, a craft premium soda.

These food and beverage innovations are expected to be accretive to PepsiCo’s 2Q15 sales.

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