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Feature Interview: How PepsiCo is Strengthening its Business through R&D - FLEXNEWS

Monday, November 26, 2012

PepsiCo recently opened its largest research and development facility outside the US in Shanghai, China.

The new centre and pilot manufacturing plant is the latest in a series of steps PepsiCo has taken to strengthen its capabilities across Asia and other emerging markets.

Asia is home to some of the world’s fastest growing food and beverage markets, making it increasingly critical for food and beverage companies to invest in innovation.

PepsiCo - which reported 10 percent organic net revenue growth for its Asia, Middle East and Africa region in Q3 2012 - says its new facility will help to expand its portfolio of locally-relevant products, such as Quaker Congees with white fungus and Lay’s hot and sour fish soup flavour potato chips in China.

FLEXNEWS spoke to Mehmood Khan, PepsiCo’s chief scientific officer, about the importance of the new facility and the company’s R&D plans going forward.

According to Khan, Asia is already “an epicenter of innovation” for PepsiCo.

He says the addition of the new centre means PepsiCo will have a one-stop-shop for new product, packaging and equipment innovation in the region, which will “unlock new growth opportunities” across the company’s portfolio.

A big advantage of the new centre is speed.

“With food and beverage test kitchens, pilot production plants, and consumer taste-tasting facilities all under one roof, we’ll be able to innovate faster than ever before – significantly reducing the time it takes to turn new ideas from our chefs in our test kitchens into new products available to consumers on store shelves,” he says.

The new centre will also work in partnership with other PepsiCo R&D centers around the world, which Khan described as being, “fully integrated as one single global network that allows us to leverage global scale while meeting local needs in each of our markets.”

PepsiCo has developed locally relevant products such as Kurkure, a leading snack brand created specifically for the India market, while also tailoring well-known global brands to local tastes.

For example, its Lay’s brand has potato chip flavors ranging from cucumber in China, red caviar in Russia, seaweed in Thailand, magic masala in India, and salt and vinegar in Australia.

Khan, who leads company-wide research and development for Pepsi, adds that its global R&D organization is focused on driving new innovation across all parts of its business.

The company has built a diverse food and beverage portfolio that includes 22 brands generating more than USD 1 billion each in annual retail sales, according to Khan, who adds that the global snacks, beverages and nutrition categories are all growing above five percent annually.

“Present in over 200 countries and territories, PepsiCo is skilled at tailoring global brands to appeal to diverse consumer tastes and lifestyles and respect local cultures,” Khan says.

Health and Wellness

Furthermore, innovation in connection with health and wellness has successfully driven growth for PepsiCo.

PepsiCo added Tropicana to its portfolio in 1998, and Gatorade and Quaker in 2001. In October 2010, PepsiCo formed its Global Nutrition Group to accelerate growth across its nutrition businesses, with a focus on fruits and vegetables, whole grains, dairy and sports nutrition.  

PepsiCo set a goal of tripling its annual revenues from nutritious and functional foods from approximately USD 10 billion in 2010 to USD 30 billion by 2020.

Khan says PepsiCo is well-positioned to capitalize on growth opportunities in the health and wellness segment, adding that the company has already been successful in three key areas.

Firstly, he says the company has increased the permissibility of its snack and beverage products, through reducing sodium and saturated fat, cooking them in heart healthy oils, using natural ingredients, and reducing sugar and calories, without sacrificing taste.

“As an example, Walkers has reduced sodium 25 to upwards of 55 percent in its products since 2005, all while maintaining its position as the UK’s top-selling brand of crisps,” Khan says.  

PepsiCo has also expanded its baked products and snacks and its zero calorie beverages, in line with consumer trends.  

According to Khan, half of its beverage sales in North America now come from low calorie beverages, active hydration beverages and juices.  

Lastly, PepsiCo has continued to build its nutrition business by developing new products across its health and wellness portfolio and expanding its offerings in growing categories such as dairy.   

In addition, PepsiCo opened its Fruit and Vegetable Innovation Center in Hamburg, Germany, earlier this year, which Khan says will accelerate the company’s R&D efforts and help create a future pipeline of innovation for its nutrition brands.  

Sports Nutrition

When it comes to sports nutrition, Khan says that PepsiCo’s Gatorade brand is focused on science-based innovations.

“Science is embedded in our brand’s DNA and it is a key driver of our long-term growth strategy of leveraging innovation to fuel more athletes across more athletic occasions,” he says.  

He calls the Gatorade Sports Science Institute (GSSI), “vital in unlocking science to advance sports nutrition like we have done so successfully for hydration.”

Scientists at GSSI will be studying athletes around the world, on and off the field, in order to ensure that Gatorade understands them and what fuels their performance, according to Khan.

Dairy

PepsiCo has also been active in dairy, a high growth category, for several years.

It’s still an emerging category in many parts of the world, and Khan says the company sees it as an attractive runway for innovation and growth.

“We’re going to capitalize on opportunities in the dairy space by focusing on differentiated product offerings that meet unmet consumer demand in the marketplace, and our Muller Quaker Dairy joint venture in the U.S. is a great example of this,” he says.

Packaging

Another big focal point of PepsiCo’s R&D efforts is packaging.

“We’re focused on a wide range of packaging innovations that will help us to achieve multiple goals – from promoting our brands, to providing convenience and portability to our consumers, to preserving and protecting the product,” Khan says.

Ultimately, PepsiCo innovates worldwide by listening to its consumers, according to Khan:"They consistently tell us they are looking for some very basic things: a wide range of product options, great-taste, convenience, and value. And we have teams of people all around the world working hard to meet these needs every day."  

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