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‘Drinkifying snacks’: PepsiCo mush or master stroke?

By Ben Bouckley+

18-Dec-2012
Last updated on 18-Dec-2012 at 13:37 GMT

Despite giving us object lessons in corporate word wash, can PepsiCo pull off what seems like a slightly puzzling mission, namely a long-term plan to ‘drinkify' snacks and vice versa under its Power of One banner?

Cross-selling in-house food and beverage brands and the ideas behind them is nothing new, but it’s obviously a weapon PepsiCo particularly fancies in its marketing/merchandising match up against Coke, although it sometimes seems that PepsiCo’s beverage/snack cup verbiage doth runneth over, blurring the lines…

As early as late 2010, PepsiCo CEO Indra Nooyi spoke of PepsiCo’s mission to ‘snackify’ drinks and ‘drinkify’ snacks, as it launched fruit puree snack Tropolis. Driven by nutrition demands, Nooyi spoke of this category elision as the “next frontier in food and beverage convenience”.

Is this simply indeterminate slick soundbite slush – positioning the standard PepsiCo product somewhere between Doritos and Gatorade – mush that reflects the average Millennial Generation brain? Or does it actually make English sense?

One thing’s for sure, such talk is an apparent snub to Wall Street and investors who – alongside muttering about Nooyi’s lack of leadership savvy – have called for the firm to spin off snacks and drinks into two entities, rather than cross-market both portfolios under the Power of One strategy.

Missed forecasts, missed market share...

Missed forecasts and missed market share to Coke cemented PepsiCo’s plan to pump $500m to $600m into marketing and advertising its big brands this year: read Pepsi, Lay’s, Mountain Dew, Gatorade, Doritos.

We’ve all haunted investor calls listening to Nooyi trying to out-Muhtar Muhtar (Kent) by extolling the unique virtues of the Power of One, the unique elixir of flogging Lay’s alongside Pepsi.

Clearly, PepsiCo targets ‘occasions’. You buy Pepsi for the TV ball game. Why not take chips too? Consumers generally – if they are not too cost conscious – can be lazy. So spoon feed them. Makes sense.

That said, are retailers properly incentivized by joint promotions as they eye the highest top line price for products? The truth may turn out to be very sad. Namely (imagine Brando's Kurtz in Apocalypse Now croaking out this final shocking confession) that '...Lay’s also pair pretty well with Coke'.

So what of Nooyi’s mission, regurgitated again at Beverage Digest’s recent Future Smarts conference, to "drinkify" foods, which calls to mind products developed by NASA for astronauts, or stuff we spoon feed babies?

Coincidentally, what does ‘Future Smarts’ mean as a name? I’ve often wondered. It seems to riff on the idea of cold corporate chic – a master race of innovative business leaders oozing smart-suited brio, pointing keenly at a computer screen in an image stolen from a second-rate recruitment website. ‘Future Scruffs’ anyone?

Mystery upon mystery…

Piling mystery upon mystery, Nooyi claimed that PepsiCo has a whole range of value-added products in the pipeline that played across the snack-beverage divide.

Since PepsiCo was a food and beverage company, it had a more holistic view of consumer preferences for food and drink, she added, and “what parts of what they eat they are willing to drinkify”.

Nooyi used the example of an oatmeal drink sold in Brazil and PepsiCo’s Naked beverage brand: juice fortified with vitamins and (what sometimes seems to be the only macronutrient that matters in the States) protein.

Will the strategy work? Well, despite apparently making as much sense to mere mortals as the 12” record strapped to Voyager 2 would to an inquisitive alien, there is method to Nooyi’s maddening drinkifiysnackificatoryassaultuponlanguage.

Within the investment community there is a minority counter-current that sees PepsiCo’s stock as an at least equal, perhaps better long-term bet than Coke’s, based on emerging market demand for ostensibly healthy snacks and beverages.

While it makes sense to focus on the parts of the business that make money – ostensibly the ‘unhealthy’ parts – it is also a savvy move to overhaul a portfolio increasingly targeted by health campaigners and regulators, and also tap a rising global health & wellness trend.

Whether we’re talking brand extensions – from beverages into snacks or vice versa – cross-selling or, indeed, producing new product categories that cross category divides, Nooyi’s comments last week created a buzz.

But the main mystery remains. Namely, whether potentially radical and niche cross-category products and business unit elision (under the controversial Power of One banner) will confuse consumers, and detract from major brands, or whether it will feed PepsiCo’s future top and bottom-line growth.

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