Inside PepsiCo's snack segmentation strategy

by Keith Nunes
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BOSTON — Positioned as the largest snack manufacturer in the world, PepsiCo, Inc. is breaking down the category and paying greater attention to the premium and value segments. At the heart of the effort is innovation and taking the snack category in new directions.

Speaking at the Barclays Back to School Conference in Boston on Sept. 5, Brian Cornell, chief executive officer of PepsiCo Americas Foods, said the salty snack category is large, continues to grow and PepsiCo sees new opportunities for growth in emerging segments within the category.

“We see opportunities to serve boomers,” he said. “We recognize that there are a number of multicultural consumers who today are looking for many of their favorite flavors. And we certainly recognize that there is a value-minded consumer who is looking for value snacking opportunities.”

Noting that PepsiCo has a leadership position in the mainstream snack category that represents almost 80% of snacking occasions, Mr. Cornell said the company is not losing sight of what is important.

“While we are excited about the growth opportunities in premium and we think we have brands and capabilities and a very focused team that can take advantage of the growth there, the key for us is staying very focused on the mainstream,” he said. “That is where the majority of the shoppers are still focused, that is where the shelf space is still focused today, and we want to make sure that we are investing in those great, iconic, mainstream brands.”

In his presentation, Mr. Cornell described the premium and value segments as “fringes” of the snack category that represent about 20% of the market.

“As we look at the premium segment, this is a rapidly growing but still relatively small part of the snack universe in the U.S.,” he said. “It does present a $2 billion opportunity for salty snacks alone.”
From an organizational perspective, Frito-Lay has created a “growth ventures model,” Mr. Cornell said, and this is essentially a “company within a company.”

“… (Growth ventures) is focused on the premium and value segment, that leverages Frito-Lay's capabilities where appropriate but has the freedom to look at unique go-to-market opportunities and leveraging other manufacturing capabilities,” he said. “Importantly, growth ventures allow the rest of the Frito-Lay organization to stay very focused on advancing and growing our position in the mainstream. We are very pleased with our performance in premium and have been outpacing the overall category growth.”

But Mr. Cornell said PepsiCo is looking to develop new forms of innovation and not just develop new products sold in the snack aisles of supermarkets and convenience stores.

“We have also brought great innovation across our food service portfolio and are really building on a great partnership that we have in food service with Taco Bell,” he said. “Together we created a delicious new product, Doritos Locos Taco. This has been an extraordinary success story.

“It is a great example of our commitment to food service and the great partnership we have with Taco Bell. Taco Bell has invested over $60 million behind this product. Together we are driving traffic, driving sales, and we have sold more than 200 million taco shells. This is a tremendous combination and a brand that has still upside potential.”

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