PepsiCo Goes Natural

PepsiCo. Inc., the massive food and beverage conglomerate with a market capitalization of $73 billion and annual revenues in excess of $27 billion, has announced their intention to migrate their snack food and beverage offerings to a more healthy profile, and to encourage the moderate consumption of snack foods.

Steven Reinemund, chairman and CEO of PepsiCo, recently announced the adoption of this surprising new corporate strategy for the conglomerate, indicating their intent to make at least 50% of their product offerings “nutritious,” while simultaneously encouraging consumers not to overindulge in PepsiCo products, much as brewers of beer have been encouraging the “responsible consumption” of their products.

PepsiCo (will) make their products more nutritious by cutting fat and adding healthy ingredients, and ... they will begin encouraging consumers to view snack foods only as “treats” and occasional “indulgences.”

PepsiCo’s action may be at least partially motivated by increasing concern among both the public and health officials about the health dangers of poor diet and obesity. The Office of the Surgeon General of the United States reports that obesity has reached epidemic proportions in the United States, with a shocking 61% of the population overweight, and 300,000 deaths per year attributable to obesity.

As snack food makers and fast-food chains come under fire, it is only natural that they will begin to moderate their position to head off potential problems and even lawsuits as experienced by the tobacco companies when public opinion shifted against tobacco because of its health risks.

In response to mounting concern, Mr. Reinemund is driving a new sense of corporate responsibility. Quoted on the front page of the Wall Street Journal, he stated that PepsiCo would make their products more nutritous by cutting fat and adding healthy ingredients, and that they will begin encouraging consumers to view snack foods only as “treats” and occasional “indulgences.”

PepsiCo is the fourth largest food and beverage company in the world, trailing only Nestle, Kraft, and Unilever. Their immense house of Brands includes such well-known names as Pepsi, Mountain Dew, Lay’s and Ruffles Potato Chips, Gatorade, Tropicana, Fritos, and Quaker Cereals.

Can the maker of such notorious snack foods as Fritos Corn Chips and Cap’n Crunch Cereal shift its Brands to stand for a natural profile? Pepsi’s intent is not to become a natural food company, but to become more healthy than they presently are. Apparently Pepsi’s acquisition of Tropicana during 1998 has given the company both insight into healthier products and expertise on how to make and market them.

Nevertheless, one of PepsiCo’s biggest challenges will be to secure the Knowledge Capital necessary to truly understand what a more natural consumer wants. But perhaps they haven’t set the hurdle too high. Their definition of healthier is that servings would contain no more than 150 calories, 5 grams of fat, 1 gram of saturated fat, and 250 milligrams of sodium. Fritos presently contains 160 calories, 10 grams of fat, 1.5 grams of saturated fat, and 170 milligrams of sodium. In this case, it is mostly about reducing fat. When physicians report that they are seeing 4 and 5 year old children who are more than 20% overweight, we will have to be thankful for any progress PepsiCo makes across its many Brands.

Previously, corporate giants in the food and beverage industry have been motivated to market healthier products, gained largely through the acquisition of natural food players, to get a piece of the booming natural and organic market. PepsiCo’s desire to create healthier products appears to stem more from a sense of social responsibility for their own Brands, and of course if its catches on, Pepsi’s Brands will certainly have first mover advantage in the grocery store.

As well, this will be a test of the basic principle of Brand Elasticity which state that a Brand can only be stretched so far beyond it’s original properties before it will snap back with incredulity and rejection from the marketplace.

If Fritos become healthier will the consumer welcome the change? Lay’s Potato Chips are building a franchise around the low-fat “Baked Lay’s,” but will it stick and gain market share or will consumers return to the salt and oil for “full flavor?”

PepsiCo has in their favor that fact that many of their products are already fairly natural, standing somewhere between Fritos and whole wheat flour. Tropicana Pure Premium Orange Juice, Quaker Oats, Life Cereal, Aunt Jemima, and even Gatorade verge upon naturalness. Die-hard natural food consumers may still withhold their favor over issues surrounding processing, preservatives, or food colorings, but the bulk of the American population could loose weight and become healthier on PepsiCo’s initiative.

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