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PepsiCo Focuses on Innovation to Drive Sales

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New products

On January 19, 2016, PepsiCo (PEP) announced the launch four new flavors under its Mountain Dew Kickstart product line. These new flavors are Midnight Grape, Watermelon, Blueberry Pomegranate, and Blood Orange. The company stated that the new would be were available at retailers nationwide beginning January 25, 2016.

On January 26, PepsiCo announced the launch of another new product—a new line of gluten-free oatmeal under the Quaker Oats brand.

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Focus on innovation

Aside from the aforementioned new products, PepsiCo also announced the launch of the Hello Goodness vending machine and organic Gatorade in December 2015. PepsiCo’s new food and beverage vending initiative, called Hello Goodness, is a unique vending machine that intends to offer healthier food and beverage product choices, which PepsiCo categorizes as “good-for-you” and “better-for-you” products.

PepsiCo is focusing on the innovation of new products across its food and beverage businesses. In fiscal 2014, PepsiCo spent $718 million on research and development costs, up 8% compared to the previous fiscal year. PepsiCo’s innovation is more focused on health and wellness products in both its snack food and beverage businesses as health-conscious consumers are looking to reduce their salt and sugar intake. In fiscal 2014, PepsiCo generated 20% of its revenue from its nutrition business.

The iShares US Consumer Goods ETF (IYK) has 6.9% exposure to PepsiCo.

New products of peers

PepsiCo’s peers are also introducing new products, which are either internally developed or obtained through inorganic growth strategy from other entities. For instance, rival Coca-Cola (KO) expanded into the organic juice market through the August 2015 acquisition of a ~30% stake in Suja Juice, a California-based manufacturer of organic juices.

Dr Pepper Snapple (DPS) strengthened its position in the sports drinks market with the purchase of an 11.7% stake in BA Sports Nutrition, the company that owns the BodyArmor sports drink line. Kellogg (K), PepsiCo’s rival in the snack food business, has also been introducing several new products. In November 2015, Kellogg announced that its US brands will launch more than 40 new products in early 2016, including new flavors under the popular snack brands like Pringles and Cheez-It.

PepsiCo’s new products might help in offsetting the weakness in the company’s soda beverage volumes. We’ll discuss the company’s soda beverages in the next part of this series.

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