Back in the mid 1990s and well ahead of its rivals, PepsiCo saw the future threat that increasing levels of obesity would play and decided to change its product portfolio. In 1997 with saturation in the fast-food marketplace the company sold its Pizza Hut business and made its first major acquisition – that of the fresh fruit juice company Tropicana which was swiftly followed by Quaker Oats for $14bn. The last five years have seen a major drive to remove hydrogenated fats from many existing snack products, coupled with a pledge that 50% of new products will use, where possible, ‘healthy’ ingredients or offer health benefits. This policy has even led to the production of fat friendly crisps; for example, the Walkers Potato Head crisps have 70% less saturated fat than traditional products.

Continuous innovation in snacks foods is not the only focus. In the beverage market the decline in carbonated drinks sales has been more than offset by other products. PepsiCo’s portfolio no longer depends on the Pepsi, 7Up and Mountain Dew lines with which it made its name. The company’s Aquafina bottled water is the number 1 brand in the US and its Gatorade sports drink now has 80% of the market. In addition, through its joint venture with Starbucks, PepsiCo now dominates the bottled coffee market with the Frappuccino range of products.

Across the product range there has also been increased recognition that ‘international’, or perhaps more accurately non North American, businesses are key to the future. After success in emerging markets such as Brazil, China, Russia and India, PepsiCo expects its international businesses to grow at twice the rate of that of North America. The company recognises and acts on the need to adapt to cultural differences in taste and style and consequently in the future the core portfolio may not be the main driver. Take Russia, for example, where the fizzy drink craze of the west has not really caught on: fully half of PepsiCo’s Russian beverage business is noncarbonated drinks – juice, water tea and energy drinks.

From being a company always under the shadow of Coca-Cola, PepsiCo has moved to the front and is intent on staying there. Since 2003 the company’s stock has more than doubled as it has out manoeuvred Coca-Cola, the fall of which over the past five years has mirrored PepsiCo’s rise. With over half its revenues coming from increasingly low fat foods and an ongoing change towards healthier drinks products, the company is the proactive food and drinks company, willing to cannibalise its own portfolio and best position itself for
long-term growth.

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