The advance of science in the food industry has beenastonishing. The progress in analytical instrumentation alone is staggering.Through use of gas chromatography/mass spectrometry, high-pressure liquidchromatography, and scanning electron microscopy with elemental identification,we now have the ability to separate, identify, and measure many compounds infoods. These sophisticated and sensitive tools help to monitor and control ourproducts.
The product developer has an expansive toolbox of flavors,enhancers, encapsulation options, emulsifiers, grains, oils, etc. to choosefrom to create successful new products that meet consumer preferences.Likewise, the ways to prepare the final products have also expanded withroasting, toasting, infrared heating, microwaving, vacuum frying, and muchmore.
And yet, there is undeniably a lot of art to making foodproducts taste good. We still rely on chefs to create well-balanced flavors.Even untrained consumers can detect a rancid potato chip faster than anyinfrared spectrometer. In fact, all they have to do is smell the just-openedbag.
Our ability to connect ever-advancing food science toaffordable, better-tasting, and healthier products is the only sustainable wayto differentiate products and maintain a competitive advantage. In anenvironment of continued commoditization of food products and increasinglysophisticated private label manufacturers, we must continue to advance ourscience while staying close to our consumers.
At PepsiCo, We Love Foods
Why is connecting science to the world of food so importantto PepsiCo? In a nutshell, it’s because the food business is so important toour business and future growth. Foods, which includes Snacks, is a criticalpart of the total PepsiCo portfolio.
Our total “foods” story is not one that we often tell.Usually, we discuss our strong North American business, driven by Frito-Lay.Or, we cover the growth potential of emerging markets like China, Russia,Brazil and India.
To begin, our foods business is over 60% of PepsiCo’srevenues. And, over the past three years, has grown slightly better than ouroverall beverage business. To be fair, a very large portion of the beveragerevenues accrues to our bottling partners. So, on a total system level,beverage revenues are still larger than foods. But for the PepsiCo corporation,foods is our largest business.
Our global foods revenues— just over $27 billion—make us asubstantial player in the global food industry. For example, if you compare ourrevenues to those of our competitors’ foods revenues, PepsiCo would be the 4thlargest food player in the world. And clearly among the fastest growing.
The global market in which we compete is almost $200 billionin retail sales. And, over time, has shown mid-to-high, single-digit growth.Certainly, as economies like China, India, and Brazil continue to improve, theoutlook for food growth remains strong as 40% of the world’s population livesin these countries. Further, the almost $200 billion market in which we competeis just a part of the overall total food universe.
Most people think of PepsiCo’s Foods business as a snackbusiness, namely chips. While we are strong in the global snack chip segment,it is less than one-third of the total markets in which we compete. We havetremendous strengths in the snack chip segment with over a 40% share of theglobal segment and we have the opportunity to continue to increase per capitaconsumption in markets outside the United States. Also, we have the“go-to-market” expertise to make direct-store delivery (DSD) a competitive advantagein most markets in which we compete.
Beyond snack chips, we see equally attractive categories. Infact, outside of our core salty snacks business sits another $130 billion ofbusiness. Although we already compete in many of these segments, we will certainlyneed to uniquely add value in order to earn the right to grow.
Shifting our Flavor Strategy
Our processes and flavor technology often are replicatedglobally. However, for consumers, flavors are local. As recently as 1998 we hada flavor strategy that counted on big successful flavors, mostly from the U.S.,that could be replicated throughout the world. This strategy worked well as webenefited from growth from universally accepted flavors such as Sour Cream& Onion and Nacho Cheese. We also had the “British Empire” flavors (i.e.,Salt & Vinegar and Cheese & Onion) that worked well in countries likethe U.K., Australia, and somewhat in Canada and Western Europe. Moreover, wehad a well-developed flavor business in Mexico with flavors such as NachoJalapeño on Doritos and Chile and Limon on just about everything.
But we were running out of big flavors to apply globally.That led to a key insight that seems obvious in retrospect but wasn’t at thetime—at least to us. That insight was very simply that to continue to grow ourflavored snack business we had to have locally relevant flavors with anexecution that lived up to the expectation.
As I said before, our initial hypothesis was that we couldbuild our business by capturing flavor trends and executing them globally. Forexample, bringing Thai or Mexican flavors everywhere. We brought chefs andculinary experts from around the world to tell us the next big flavor trends.That’s when the epiphany happened. Every chef we brought in told us that whatwe really needed to do was capture local traditional flavors that in some caseswere being diminished by the explosion of globalization.
Identifying locally relevant flavors that could addincremental business was an important step, but only the beginning. The promiseto consumers of a locally relevant flavor would raise expectations on delivery.We needed to do a much better job of delivering on the authenticity of theflavors so they would be believable. That led to an all-out effort to improveour technical capability to deliver authentic flavors.
To meet our new flavor strategy, we developed two keytechniques—the “MasterChef” process to identify locally relevant flavors and“FlavorPlus” technology to recreate authentic local flavors in the finishedproducts.
Using the MasterChef process, we were able to design amethodology that we could roll out worldwide to replicate successfuldevelopment of locally relevant flavors. PepsiCo maintains an extensive networkof chefs and culinary experts from around the world that we can leverage todiscern flavor preferences and trends. We work with our functional partnersfrom Marketing and Purchasing as well as our key flavor suppliers in localideation sessions. We created a toolbox that describes not only how to identifypotential winning flavors, but also how to conduct quantitative testing in auniform and reliable way to get to a product-launch flavor.
To deliver the authenticity of a flavor, we understood thatreplicating the timing of how a flavor is released during consumption (e.g.,aroma, taste, texture, etc.) is critical to making an authentic flavor thatlives up to consumers expectations.
Our first successful application was in Mexico on our lime-flavoredpotato chips. Anyone who has spent at least a day in Mexico can see howprominently a role lime plays in flavoring. Fresh-squeezed key limes areubiquitous flavor accompaniments to a wide range of dishes and foods, includingsnacks. Not surprisingly, we already had a reasonably successful lime-flavoredpotato chip on the market. However, with the insight that our current limeflavor did not really replicate real fresh-squeezed lime, we went to work.First, we had to capture the aroma of a fresh-squeezed lime peel note, which isa consumer’s first sensory experience well before eating or chewing. Then, wewould bring in the fresh citrus flavor, followed by the fried potato flavorfrom the chip, and ending with a fresh citrus note leading to the next bite.
The results were very positive. Despite already being a well-establishedflavor in our Mexican business, the new lime flavor significantly increasedsales.
Replicating Success Worldwide
Once we developed the methodology for identifying winninglocally relevant flavors and added the technical capability to deliver moreauthentic flavors, our challenge was to take the process around the world. Theonly way to do that was to spend time in the individual markets with the local R&Dand Marketing teams. For example, we tried a lot of Chaat (i.e., savory snacksmade with fried dough, potatoes, spices, etc.) in Mumbai and Delhi to identifythe right flavors for a line in India called Lay’s Chaat Street. Chaat is avery common form of eating/ snacking in India, often from small kiosks on thestreet.
Building on our firsthand experience of sampling many formsand flavors of Chaat, we had a team of local PepsiCo managers— together withlocal chefs and partners from our key flavor houses—brainstorm possible Chaatversions for a line of potato chips. The next step was to put the ideas intoconcept testing to identify the most appealing, most incremental ideas. With ashort list in hand, we turned to our flavor houses to develop flavors thatwould live up to the promise of a Chaat line. We leveraged our FlavorPlustechnology and understanding of the timing of the key flavor notes to makeauthentic-tasting flavors for our potato chips.
Many people who grew up in Russia can relate to theexperience of picking wild mushrooms with their family in the fall. In fact,this is a powerful emotional memory for many adults. A common preparation is tocook the mushrooms in sour cream. We identified this flavor in a MasterChefsession with our Russian colleagues. In concept testing, we could see we had ahit. Next, the challenge was to produce a believable flavor. Mushroom is adifficult flavor to capture. With a lot of help from one of our flavor houses,we were able to “nail” the aroma and flavor of cooked wild mushrooms. Theresulting potato chip product was an instant success in Russia and almostentirely incremental to business—there just wasn’t anything like it on themarket. And, because of the difficulty in making an authentic mushroom flavor,it won’t be easy to copy.
Making Healthier Products
PepsiCo is committed to “Performance with Purpose.”PepsiCo’s responsibility is to continuously improve all aspects of the world inwhich we operate— products, environment, people— to create a better tomorrowfor future generations. Clearly, our products can play an important role. Weplay a responsible role in health & wellness by offering a range of productchoices and encouraging healthy lifestyles through activity.
Over the past decade, we have seen a clear and steady trendof health & wellness concerns, some of which have the potential to be abarrier to consumption of our products. We have been very active reformulatingour products to reduce or eliminate ingredients of concern and at the same timeadding positives like whole grains and new product choices like low-fat bakedpotato chips and bread snacks.
Frito-Lay has a tradition of being at the forefront ofhealthy snacking. We introduced reduced-fat Ruffles in the late 1980s, SunChipswith multigrains in the early 1990s, lowfat Baked Lay’s in 1995, and no-fatLay’s made with Olean fat-free oil in 1998—just to name a few.
In 2002, the scientific community came to a consensus on thenegatives of trans fats (they were originally thought of as a healthieralternative to saturated fats). By the end of 2003, Frito-Lay eliminated transfats from all their snack products, becoming the first major snack manufacturerto eliminate trans fats.
In the U.S., we use oils like sunflower and corn that arevery low in saturated fats. While we have some room for improvement elsewherein the world, we’re making progress with a goal to be in healthier oilsthroughout our global businesses.
Further, we have been active in lowering sodium. Ourproducts are already much lower in sodium than most people realize. Forexample, a serving of Lay’s has a fraction of the sodium of most soups.Nevertheless, we have been investing substantial R&D to look for novel waysto further reduce the sodium in our products.
Finally, we have introduced many new products to deliverpositive nutrition. For example, in 2007, we launched Flat Earth snack crispswith a half serving of vegetables or fruit in every ounce. We introduced theTrue North line of natural nuts and nut crisps in 2008. We have the lowfatStacy’s line of pita chips in North America. In Australia, we have a low-fatline of rice crackers under the Sakata brand. Last year, we launched Baked Laysin several countries, including Europe and South America. We rolled out Cheetoswith added protein in India ... and the list goes on and will grow even fasterin the future. Of course, we have the world’s leading brand of oats under ourQuaker brand. We’re expanding Quaker across the globe with recent launches inChina and India.
Importantly, we’re also reducing the use of artificialcolors and flavors to deliver simpler ingredient statements.
Moving Ahead with Open Innovation
In order to deliver against our Health & Wellness agendaand to continue to provide better tasting, more-authentic products, we continueto develop new technologies and capabilities. When it comes to our corecompetencies like frying or potato agriculture, we believe we have the world’sexperts and significant amounts of proprietary knowledge. As we move into newcategories and look for new tools to make our products healthier and tastierand keep them affordable, we have to look beyond our own internal capabilities.
While we may have not been one of the first CPG companies toadopt open innovation, we believe we have leveraged it aggressively in recentyears. More importantly, we have integrated it into our R&D teams. In justthe past four years, we have engaged in research contracts with several dozenexternal research partners from around the world, including universities, suppliers,entrepreneurs, and consultants. We have made these external research partnerspart of our development teams and gained a lot of experience in managingmultiple work streams with multiple partners. Furthermore, we have learned theimportance of motivating our product development partners to share in theexcitement of launching new products. When you have young post doctoratesworking on projects, money is just part of the way to motivate them. We makesure they understand our vision of being a company that makes and sellsdelicious, healthy, and affordable snacks. When they get excited about thevision, we see immediate dividends in the creativity and output from our hybridinternal/external research teams.
Fortunately, we still have a lot of opportunity to furtherimprove the taste, authenticity, health, and naturalness of our products. Thereare also a lot of snack and food categories that we don’t currently have alarge stake in. So, there is a lot of upside for us both in the U.S. andespecially internationally.
In order to continue to make our products delicious andexpand them into new categories, we’re investing in our culinary capabilities.We hired an executive chef in 2008 and are looking forward to the inaugurationof a state-of-the-art culinary innovation center in Plano, Texas, later thisyear.
Under the leadership of our recently appointed ChiefScientific Officer Dr. Mehmood Khan, we are making significant investments intolong-term research and creating capability in the Biological Sciences wellbeyond what we have had historically. We created a new department to focus onlong-term process and packaging technology to create highly capable andflexible manufacturing lines and environmentally sustainable, consumer-preferredpackaging materials and package designs.
With our local capability, external research partners,increasing focus on long-term research, and investment in culinary capability,we believe we have the right “recipe for innovation” for PepsiCo’s Global Foodsbusiness.
(Originally published in Food Technology Magazine, June2009)