PURCHASE, N.Y. — A challenge PepsiCo, Inc. faces is developing new products and brands without cannibalizing its current business, said Indra K. Nooyi, chairman and chief executive officer. The space on retail shelves is limited, and when new items are added, it means other items may no longer fit.
“ … If I look back, especially the last five years of beverages, we’ve had some spectacular new products which for any small start-up company would have been a blockbuster,” Ms. Nooyi said during a July 10 conference call to discuss second-quarter results. “But for PepsiCo, because we put it through (our) D.S.D. (direct-store delivery) system, and once it reaches a scale of a Lifewatr or bubly in the first 12 to 18 months, we can’t support it because many times the space has to come out of the core cooler or the core aisle.”
To address the issue, the company has created a separate business group it calls Hive. The team running the unit has been charged with taking some of the company’s best new products that have stalled within the D.S.D. system and finding ways to scale them up without sacrificing shelf space for other products.
“We will nurture it and incubate it in whatever distribution system they think is the best for it,” Ms. Nooyi said of products managed by Hive. “And when it reaches a certain size, we can decide whether it should come into the D.S.D. system or not.”
She added that Hive also will be responsible for seeking outside brands that may be a fit for PepsiCo.
"We want to create an environment where we have a business within a business, a small entrepreneurial sort of agile group that’s thinking about the new age consumer that loves discovery brands while allowing the big brands to thrive in the overall mother ship." — Indra Nooyi, PepsiCo
“… We want to create an environment where we have a business within a business, a small entrepreneurial sort of agile group that’s thinking about the new age consumer that loves discovery brands while allowing the big brands to thrive in the overall mother ship,” Ms. Nooyi said.
PepsiCo is not the only company looking for ways to add scale to smaller, more entrepreneurial brands. Other companies include Nestle S.A., Tyson Foods, Inc. and the Campbell Soup Co., to name a few.
“ …We’re going to play with these businesses because there is a consumer that is willing to pay for discovery brands, and they can reach a decent level of growth,” Ms. Nooyi said. “And, so, we’re going to go off and see how to make it happen.”