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PepsiCo/Frito-Lay looks to exploit premium and value snacks growth

By Oliver Nieburg , 01-Mar-2012

PepsiCo has announced plans to consolidate its position at the top of the global snacks market by investing in the rapidly growing premium and value snack segments.

PepsiCo is the market leader in macro snacks worldwide with its $28bn Frito-Lay business. Though it has enjoyed huge success within the category, growth opportunities are still seen in premium and value snack products.

Rapid premium growth

PepsiCo CEO John Compton said at the CAGNY conference in New York: “We will be addressing the two segments within salty snacks and macro snacks that gave us some concern and that is the premium segment and the value segment.”

Tom Greco, president of Frito-Lay North America added: “There is a trend developing which is requiring us to think differently.”

“The American macro snack consumer is truly bifurcating. As a result there's rapid growth in both premium and value segments within macro snacks.”

He said the premium segment was a $2bn opportunity within salty snacks alone.

Compton added: “We are obviously more comfortable in the premium segment. We’ve been there with Stacy’s; we’ve been there with Sombra.”

Four pronged strategy

Greco outlined a four pillar strategy to achieve snack growth in North America that is aligned to PepsiCo’s global snack policy.

The first approach is brand building. PepsiCo plans to increase its advertising and marketing for its snacks business by 35%.

Next it is looking to innovation. In the premium segment it plans new product launches including Ruffles Ultimate, a thicker cut crisp with deeper ridges, and 40% reduced fat Lay’s Kettle chips. It also plans new value popcorn varieties under its Crackerjack brand.

“One area in which we are laser-focused on innovation at the opening race point is Lay's Stax,” said Greco.

He said that by introducing new Hispanic flavours to the premium Stax brand PepsiCo could gain further market share from Pringles (recently acquired by Kellogg), which has experienced falling sales in recent years.

The final two pillars were focused upon execution and productivity. Execution could be best achieved by catering to local tastes while productivity could bring operating costs down, said Greco.

Grain snacks

Another way the company sees growth opportunities in the premium market is through grain snacks.

Compton said: “Grain snacks are one of the fastest growth platforms globally that we have and we fully expect it to grow double digits again this year in 2012."

“Grain snacks allow us to find new occasions beyond traditional snacking and enter into many mills and grain snacks allow us to serve additional cohorts like many of us in this room, aging baby boomers.”

He said the firm would focus its investment on its biggest brands, which includes grain snack Sun Chips as well as Lay’s, Doritos, and Cheetos.

Currently PepsiCo’s snacks and beverage businesses are evenly balanced. However, company chairman and CEO Indra Nooyi said that with the continued focus on snacking he expected PepsiCo’s snack business to become bigger than beverages in the next decade.

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