PepsiCo moving beyond new products to 'innovation'
May 11, 2012
by Keith Nunes
NEW YORK — Executives with PepsiCo, Inc. speaking at the Goldman Sachs Consumer Products Symposium in New York on May 10 expressed optimism that stepped-up innovation at the company holds potential for incremental growth.
In March, PepsiCo, through its Frito-Lay brand, launched Doritos Jacked, tortilla chips that are billed as being bigger, bolder and thicker. The chips are about twice the size of regular Doritos, have more flavored powder, and have a more substantial crunch.
The company also in late March introduced Pepsi Next, which contains 15 grams of sugar in a 12-oz can, or about 60% less sugar than in a regular can of Pepsi, and 60 calories, which compares with 150 calories in a regular can of Pepsi. The product is being marketed as a mid-calorie cola, and Hugh Johnston, chief financial officer of PepsiCo, said the company is excited about the initial response.
“Let’s face it, a mid-calorie cola is certainly not a new concept by any stretch of the imagination,” he said. “In fact, the first mid-cal that I worked on was called Jake’s, and we worked on it in 1988, so the concept has been around for a period of time. What’s different is this one actually meets the proposition that consumers are looking for. It’s innovation in that it hits an unmet need. The unmet need here is ‘I want to have less calories, I still like cola and I don’t like the taste of diets.’ Previous mid-cals tasted very much like diets. This product is awfully close to the taste of Pepsi, and with 60% less calories really does meet that consumer proposition.
“Given that the cola category is losing about 90 million cases a year, there’s lots of what we call ‘lapsed cola users’ who would like to be back in the category if we present the right proposition to them. So in terms of market share, the share has been above a point thus far so it’s come out of the blocks very strongly. Trial looking good, ahead of our expectations.”
In the question-and-answer portion of the presentation, Mr. Johnston was asked to differentiate between the launch of Pepsi Max, which contains no calories, and Pepsi Next. He responded by describing a fundamental shift in how PepsiCo is addressing the market. He characterized the launch of Pepsi Max, as well as different flavors of Doritos or Gatorade as “product news,” whereas the introduction of Pepsi Next qualifies as “innovation.”
“(We weren’t) really meeting and going after truly unmet consumer needs,” Mr. Johnston said. “The result of that was in the past a lot of the innovation frankly hasn’t been all that incremental. It was somewhat incremental. You got a little bit of a lift out of it. It tended not to last very long so you’d be in and out with it.
“Same thing in the foods business. Doritos, we oftentimes ran new flavors, same basic chip. It was a way of creating interest in the category. People like experimenting with it. The real difference was about three plus years ago when we brought in Mehmood Khan (executive vice-president and chief scientific officer, research and development) and created an entire global R.&D. organization. We started to focus more on what are the real technology unlocks you can get to actually meet an unmet consumer need?
“Pepsi Next is a good example . . . that concept of capturing those lapsed cola users has been there for a long time. The product never really delivered because we didn’t have the capability to do it. It’s the R.&D. investments that create products like that or create products like Quaker Medley, which isn’t instant oatmeal in a cup — it’s oatmeal with real fruit, real nuts, and it’s a higher grade of oatmeal. That, to me, is the big difference.”