Snack innovation boosts PepsiCo

by Monica Watrous    View Me on Google+
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PepsiCo aims to generate buzz with its Lay's "Do Us a Flavor" campaign, featuring four consumer-submitted flavors that include cappuccino.

 

PURCHASE, N.Y. – PepsiCo, Inc. hopes its new cappuccino-flavored Lay’s potato chips will create enough buzz to drive growth in the second half of the year. The unusual flavor is part of recent promotional efforts to increase on-line interaction with consumers and generate trial of new products. Such innovation and consumer engagement programs helped lift sales during the company’s second quarter.

“Our top-line growth was driven by strength across most of our largest trademarks with Lay's, Doritos and Cheetos each posting revenue growth in the low- to high-single-digits,” said Indra Nooyi, chairman and chief executive officer, during a July 23 call with financial analysts to discuss second-quarter earnings. “Our broader macro snack offerings are also doing well, with strong performance in shelf-stable dips, crackers, our line of Smartfood snacks and the Sabra line of refrigerated hummus, dips and spreads. As we look to the second half we are encouraged by the strength of our innovation in consumer engagement programs leveraging some of our biggest brands.”

In April, the company rolled out its Doritos Jacked Mystery Flavors campaign, which pitted three varieties of the seasoned tortilla chips in an on-line voting campaign. The flavors were revealed in July as Chocolate Chipotle Bacon, Caribbean Citrus Jerk and Spicy Street Taco, which received the most votes and will be launched as a permanent product in the fall.

The coffeehouse-inspired Lay’s variety is part of the Lay’s “Do Us a Flavor” contest in the United States. In its second year, consumers submitted more than 14 million flavor suggestions, nearly four times the submissions received for last year's campaign, Ms. Nooyi said. Starting July 28 through Oct. 18, consumers may vote on-line at DoUsAFlavor.com for one of four submitted flavors, which also include Cheddar Bacon Mac and Cheese, Mango Salsa, and Wasabi Ginger. The creator of the winning flavor receives $1 million. Last year’s winner was Cheesy Garlic Bread, which collected more votes than Chicken and Waffles and Sriracha.

Doritos Loaded were launched in July exclusively in 7-Eleven stores.

 

Another new product driving on-line engagement is Doritos Loaded, which are Doritos-encrusted bites filled with melted nacho cheese that are sold exclusively in 7-Eleven stores nationwide. The snack was introduced concurrently with Solar Flare, a tropical punch variety of Mountain Dew, which has a high purchase coincidence with Doritos.

“Each of these programs is a strong demonstration of how we are leveraging our culinary center to create unique great tasting new products and driving excitement … through creative consumer engagement.”

Innovation helped PepsiCo’s Quaker Foods North America division gain value share at retail in its key categories of hot cereal, ready-to-eat cereal and snack bars. Recent launches include Quaker Express Cups, which is instant oatmeal packaged in on-the-go cups, and Quaker Warm and Crunchy Granola, the brand’s first-of-its-kind hot cereal. The company also continues to build on the success of its Real Medleys platform with the addition of ready-to-eat cereal.

Recent innovation from PepsiCo's Quaker Oats division includes the brand's first-of-its-kind hot cereal with granola.

 

PepsiCo also gained value share during the first half of the year in the liquid refreshment beverage category.

“Within the L.R.B. category we held or gained value share across a number of important subcategories including (carbonated soft drinks), sports drinks, ready-to-drink tea and chilled juice,” Ms. Nooyi said. “And we grew retail sales in measured channels in the U.S., where regular C.S.D.s, led by trademark Mountain Dew, which was up mid-single-digits, and within our non-carb portfolio for Gatorade, Lipton tea, Starbucks Coffee and Naked Juice.”

Expanded package offerings, including mini cans and 12-oz glass bottles, generated double-digit growth during the quarter.

For the second quarter ended June 14, net income attributable to PepsiCo was $1,978 million, equal to $1.29 per diluted share on the common stock, down 1.6% from $2,010 million, or $1.28 per share, in the prior-year period.

Net revenue increased slightly to $16,892 million from $16,807 million.

Operating profit for Frito-Lay North America rose 3% to $937 million from $906 million last year, and net revenue for the segment climbed 2% to $3,387 million from $3,332 million.

For Quaker Foods North America, operating profit increased 4% to $139 million from $133 million, as net revenue declined 2% to $564 million from $577 million.

PepsiCo Americas Beverages posted a 2% decrease in operating profit to $868 million from $882 million and a modest bump in net revenue to $5,281 million from $5,260 million.

“Clearly there are a number of challenges around the globe, but the shape and resilience of our portfolio, combined with strong execution and aggressive productivity, should enable us to navigate successfully through the current environment,” Ms. Nooyi said.
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