PepsiCo sets sights on growth in global snacks

by Eric Schroeder
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PepsiCo is expanding its savory snacks selection to include crackers, nuts and seeds.

PURCHASE, N.Y. — Adding accompaniments to its products and stealing share from other macro snacks categories are two ways PepsiCo, Inc. plans to grow its global snacks platform, Indra Nooyi, chairman and chief executive officer of Purchase-based PepsiCo, told analysts during a July 9 conference call to discuss second-quarter results.

“I think in global snacks, we are in an interesting position because our base is savory snacks, and we are a very, very strong player in savory snacks,” Ms. Nooyi said. “First of all, globally we still have a lot of growth within savory snacks. We came from a salty crisp snack background, and we are expanding more and more into other savory snacks, be it crackers, be it nuts and seeds, we are expanding into those areas.

“There’s a lot of opportunity there.”

Ms. Nooyi said she sees growth in global snacks along two dimensions: accompaniments to snacks and taking away eating occasions from other macro snacks.

Because many of its snacks are consumed by themselves, adding accompaniments to its snacks portfolio is what prompted PepsiCo to introduce dips, Ms. Nooyi said.

“Other times our snacks serve as sort of a substrate upon which you can put on meat-like products like our Sabra hummus or our Tostitos dips,” she said. “So that’s one vector to grow, and we still haven’t scratched the surface that we’ve got lots of growth.”

The other dimension is taking away eating occasions from other macro snacks categories.

“It’s interesting, unlike beverages, in the case of snacks we can go off and take eating occasions from other macro snacks, be it cookies or confectionery or chocolate,” Ms. Nooyi said. “And our goal is to focus on what we are doing but looking at our science of demand spaces, which I talked about briefly, look at each eating occasion by cohort group and figure out how we can leverage our salty snack platform to go after other macro snacks, be it replace it with a salty occasion or do some sort of a salty/sweet combination.”

As an example, she mentioned Stacy’s Pita Chips with cinnamon sugar.

“It’s based on a pita chip, but it’s certainly sweet when you taste it and has a much better mouthfeel and experience than if you eat something totally sweet by itself — at least that’s my perspective,” she said. “So I think that our growth is all about growing the core and then leveraging all of the other eating occasions, taking share away from other macro snacks and other savory snacks.”

Indra Nooyi sees plenty of opportunity for growth in savory snacks.

It also will be important for PepsiCo to leverage the beverage occasion, where the company has a much larger retail penetration than it does with snacks, Ms. Nooyi said.

“If you leverage that retail base, it gives you a lot more opportunities for growth,” she said. “And internationally, we are leveraging in-store promotional displays a lot more. I was in the Middle East a few months ago, and I was just amazed to see the in-store displays of Lay’s and Pepsi, and again with the shares of Pepsi that we have there, it is really a powerful in-store promotion that results in tremendous lift.

“So the opportunities for growth by itself and in combination with beverages are pretty significant.”

In the second quarter ended June 13, operating profit within Frito-Lay North America was $1,007 million, up 7% from $937 million in the same period a year ago. Net revenue in the division increased 2% to $3,452 million from $3,387 million.

For the six months ended June 13, operating profit in the division was $1,927 million, up 7% from $1,799 million. Net revenue was $6,771 million, up 2.5% from $6,606 million.

Meanwhile, operating profit within Quaker Foods North America fell 5% to $132 million from $139 million, while sales fell 3% to $546 million from $564 million.

For the six months, operating profit within the division was $231 million, down 23% from $299 million. Net revenue was $1,185 million, down 1% from $1,198 million.

Overall, net income at PepsiCo, Inc. in the first quarter ended March 21 was $1,980 million, equal to $1.33 per share on the common stock, virtually unchanged from $1,978 million, or $1.29 per share, in the same quarter a year ago. Net revenue was $15,923 million, down 6% from $16,894 million. For the first six months of fiscal 2015, net income was $3,201 million, or $2.14 per share, up narrowly from $3,194 million, or $2.08 per share. Net revenue was $28,140 million, down 5% from $29,517 million.
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