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PepsiCo Emphasizes Innovation in 2Q15 Conference Call

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New products

In PepsiCo’s (PEP) 2Q15 conference call, Chairman and CEO (chief executive officer) Indra Nooyi discussed at length the company’s focus on innovation. PepsiCo is placing more importance on developing new platforms rather than only introducing product line extensions.

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Investments in research and development

PepsiCo has been increasing its research and development (or R&D) investment since 2008. From 2011 to 2014, its R&D investment increased almost 40%. PepsiCo has also established a design capability that helps it evolve designs at the early stages of innovation.

New products PepsiCo has launched over the past three years include Tostitos Cantina, Mountain Dew Kickstart, and Doritos Cheetos Fun Multipack Mix. These products have achieved or are on the way to achieving more than $100 million in annual retail sales.

Recent innovations

One of PepsiCo’s recent innovations is a new craft soda line called Stubborn Soda. It will initially be available only as a fountain drink. The company is also focusing on introducing premium products that will result in more price realization, like recently launched Caleb’s Kola and DEWshine, PepsiCo’s new craft premium sodas.

Healthier product variations include Quaker Quick 3-Minute Steel Cut Oats, Cracker Jack’D protein snacks, and the nuts-based milks under the Naked Juice brand. The company is also working on new flavors like Pepsi Limon and four new flavors under the AMP Energy brand.

PepsiCo is introducing Diet Pepsi without Aspartame. But in its 2Q15 conference call, PepsiCo management stated that its original Diet Pepsi with Aspartame will be available online for customers who still prefer the old taste.

Beverage companies are also focusing on sustainability in their packaging. In June 2015, Coca-Cola (KO) introduced its PlantBottle made entirely of plant materials. Keurig Green Mountain (GMCR) is working on ensuring that 100% of its K-Cup packs are recyclable by 2020. Dr Pepper Snapple (DPS) has saved about 60.7 million pounds of plastic in packaging through lightweighting between 2007 and 2014.

PepsiCo makes up ~0.4% of the portfolio holdings of the iShares MSCI ACWI ETF (ACWI) and 4.6% of the Consumer Staples Select Sector SPDR Fund (XLP).

In the next part of this series, we’ll look at the marked improvement in PepsiCo’s margins.

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