Targeted innovation and apt marketing help PepsiCo’s snack portfolio
The snack conglomerate posted 4.3% organic net revenue growth in its latest earnings report. In emerging markets – which include India, Saudi Arabia, Turkey and China – that number reached 7%.
“Investments we’ve made in innovation, marketing and consumer insights, manufacturing and go-to-market capacity are providing benefits across the portfolio,” said CEO Ramon Luis Laguarta. He noted positive sales for ‘large mainstream’ brands including Doritos, Cheetos, Ruffles and Fritos.
Smaller premium brands, including Bare Snacks and Off the Eaten Path, have also helped with double-digit growth, he said.
These snacks are performing well across channels, including foodservice and ecommerce. “We’re gaining [market] share because we have a very broad portfolio that plays across all the different consumer segments... A holistic set of reasons is why this business is continuing to perform at a very high level compared to other consumer packaged goods in the United States,” said Laguarta in a call with investors.
In North America, PepsiCo has increased marketing spend for Quaker Foods, in particular its Aunt Jemima brand. That segment saw a 1% boost this quarter to $576m, compared to a 5.5% increase to $4.1bn for Frito-Lay North America. Volume sales also increased 1.5%.
In fact, PepsiCo has boosted its marketing investment overall by 12%. It has embraced a multifaceted approach to reaching loyal fans and new consumers: Cheetos, for instance, partnered with Kentucky Fried Chicken on a Cheetos-laden chicken sandwich; Doritos launched a logo-less campaign; Fritos teamed up with a veterans group on special bags in honor of the US Fourth of July; and Lay's pictured real people on its second round of Smilers bags and unveiled its first brand refresh in decades.
Key to PepsiCo’s recent success has been a restructuring to enhance the company’s ability to innovate more quickly and connect more specifically with local markets.
“Becoming faster is about winning in the marketplace, being more consumer-centric and [accelerating] investment for top-line growth,” said Laguarta.
“Becoming stronger is about transforming our capabilities, cost and culture by operating as One PepsiCo, leveraging technology and winning globally and locally.”
According to the company’s sustainability report, released in late September, more than half of ‘farmer-sourced’ agricultural raw materials were sustainably sourced as of January 2019. Those products include those integral to PepsiCo’s robust snacking portfolio: potatoes, corn and oats.
By 2020, the company hopes to reach 100%.
In North America, 100% of Frito-Lay’s chips (Lay’s and Ruffles) are already made from sustainably sourced, domestic potatoes, according to the report.
That tech involves precise data analytics “to achieve precision at scale, which is to execute in every store with precisely the right products at the right price,” added Laguarta. This “granular consumer level data” aims to build “true consumer intimacy.”
Rather than view customers as ‘groups of millions,’ he said, PepsiCo has transitioned to harnessing data to understand purchase decisions down to the household level, for instance, which, in turn, benefits store-level decisions.
Sodium and sugar reductions, plus smaller packs
In addition to environmental and social commitments, PepsiCo will continue to improve its offering of snacks lower in sodium and saturated fat, and beverages lower in sugar.
Quaker products have also undergone a transformation to remove artificial ingredients – a move that Laguarta believes will pay off in the long term. This division now reports to Frito-Lay, which, he added, will streamline operations and improve supply chain logistics and sales.
He also mentioned the importance of smaller product sizes in both snacks and beverages. “It [has] been going on in snacks for several years as well where our variety packs in Frito-Lay are growing very fast. Internationally, by far, our smaller packs are the #1 packaging of choice for consumers.”
He called out Lay’s Baked and Sunbites Veggie Harvest, and affirmed the company would “continue to expand... more nutritional options.”