Focus on everyday nutrition
In the 1Q16 conference call, Indra Nooyi, PepsiCo’s (PEP) chair and CEO, emphasized how the company is reshaping its snack food and beverage portfolio to capture the growing customer demand for nutritious products. These products contain ingredients like grains, fruits and vegetables, and proteins. They also include beverages like water and unsweetened tea. According to PepsiCo’s CEO, these products account for 25% of the company’s revenue. The growth of these everyday nutrition products is outpacing the growth of the rest of the company’s product portfolio.
Is soda an attractive prospect?
In the 1Q16 conference call, PepsiCo’s CEO also spoke about how the company is reducing its reliance on carbonated soft drinks (or CSDs), which currently account for less than 25% of total revenue. The US CSD volumes have been declining for over a decade now. According to Beverage Marketing Corporation, the US CSD volumes declined by 1.5% in 2015.
In 2015, the overall CSD volumes of Coca-Cola (KO) and Dr Pepper Snapple (DPS) grew by 1% each. However, PepsiCo’s North Americas Beverages segment experienced a 2% decline in its CSD volumes in 2015. In contrast, the noncarbonated, or still beverage, volumes of these companies grew at a stronger rate than soda in 2015.
PepsiCo continues to expand its portfolio through the innovation of lower calorie products. These lower calorie products are gaining traction among consumers. For instance, Mountain Dew Kickstart, which contains 40 calories per eight ounces, generated over $300 million in estimated retail sales in 2015. Launched in 2013, Mountain Dew Kickstart posted a volume growth of 34% in 1Q16. The volumes of other lower calorie products like Smartfood Delight Popcorn and reduced-fat Doritos increased by over 75% and 30%, respectively, in 1Q16.
PepsiCo is now gearing up for the launch of ~20,000 Hello Goodness vending machines, which will help in increasing the out-of-home availability of the company’s everyday nutrition food and beverage products.
We’ll look at the performance of the company’s North America business in the next part of this series.