PepsiCo to focus on healthier foods, cuts salt

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by Emily Fredrix

NEW YORK (AP)—PepsiCo, largely known for junk-food brands such as Doritos and Pepsi, is setting out to triple its sales of healthier fare in the next decade.

MediaDay
MEDIA DAY— PepsiCo Chairman and CEO Indra Nooyi speaks to reporters during PepsiCo media day and investor expo March 22 in New York.

PepsiCo Inc. unveiled the new goal for brands such as Tropicana, Dole, Quaker and Tazo teas on Monday at an investor event. The company also backed its forecast for long-term earnings growth.

Governments around the world are exerting pressure on food makers to improve nutrition. But Pepsi is also making the case that it’s just as much consumer demand that’s driving the changes.

“Consumers are heading toward ‘good-for-you,’” PepsiCo CEO Indra Nooyi said Monday during the meeting.

PepsiCo expects more shoppers to buy based on nutrition as Baby Boomers age and people in developing countries get wealthier. Currently, about 18 percent of PepsiCo’s revenue comes from the lines it considers healthier, including Tropicana, Dole, Quaker and Tazo teas. Nooyi wants to triple $10 billion in revenue from such brands to $30 billion by 2020.

That may be a huge boost, but the nutrition business is still small compared with the company’s less-healthy food (it’s using the term “fun for you”) such as Lay’s potato chips and soda, worth $50 billion a year.

Nooyi said the two businesses require different approaches. The chips, soft drinks and other brands grow quickly and can have many different versions of brands, such as lime-flavored Tostitos.

But the nutrition business’ brands must not have too many variations so the brand remains the focus, and they must be led by people who have experience in marketing healthier foods.

“The potential for the growth of this market is enormous, and for a player who wants to play in this market intelligently, the opportunities are really incredible,” Nooyi said.

People are willing to pay more for products perceived as healthier—even if they’re making spending cuts elsewhere, said Gerry Khermouch, editor of “Beverage Business Insights.”

He attended a recent natural foods trade show and said it was clear from the number of new products that it’s still a growth market that commands higher prices.

“Where people clearly see that value, they’re willing to pay,” he said.

PepsiCo, based in Purchase, N.Y., said Monday it plans to cut sodium in each serving of its key brands by one-fourth in five years. It also set two goals for the next 10 years: to cut the average added sugar per serving in drinks by 25 percent and saturated fat per serving by 15 percent, in addition to adding more whole grains, fruits, vegetables and low-fat dairy into product lines.

An array of food makers have announced similar goals. Last week Kraft Foods Inc. pledged to cut salt in its products sold in North America by an average of 10 percent over the next two years. ConAgra Foods Inc. and Campbell Soup Co. have also announced sodium cuts.

Many health leaders have urged food makers to make such changes. First Lady Michelle Obama has made the fight against childhood obesity a top priority. Last week she asked the nation’s largest food makers at a meeting of the Grocery Manufacturers Association to put less fat, salt and sugar in foods.

Also last week, PepsiCo said it would remove full-calorie sweetened drinks from schools worldwide by 2012.

PepsiCo is investing in science to improve nutrition, including developing a new salt and more lower-calorie or zero-calorie sweeteners.

The new salt dissolves more quickly in the mouth, so people don’t have to eat as much to get the same effect, said Mehmood Khan, the company’s chief scientific officer. Pepsi changed the salt’s size and crystal structure so the taste on a potato chip stays the same.

“Every consumer just about will tell you consistently they do not want to compromise on taste, so there’s the scientific challenge,” Khan said.

At the same time, PepsiCo isn’t ignoring its soft-drink business.

The staple soft-drink business industry-wide has been slumping as people switch to healthier juices and teas or limit their purchases in the recession.

Nooyi said she didn’t like the beverage business’ results over the past few years, and when the company looked at ways to improve it, it realized it had to make a change—buy up its bottlers so it could control distribution, be quicker to market with new products and save on costs. The company completed its $7.8 billion acquisition of Pepsi Bottling Group and PepsiAmericas last month.

Nooyi said the beverage business should return to profitable growth this year.

The company maintained its long-term earnings growth forecast, saying it still anticipates 2010 earnings growth of 11 percent to 13 percent and low-double-digit profit growth for 2011 and 2012 on a constant currency basis and excluding certain one-time items.

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