July 10, 2012
As Soda Continues To Get a Bad Rap, Pepsi Opts To Diversify: As Mayor Bloomberg Fronts War On Cola, Beverage Maker Retools Its Focus With Foray Into Burgeoning Yogurt Industry — Which Has Suffered From Missed Marketing Opportunities In the U.S.
Pepsi has virtually spent its entire existence waging war against market leader Coca-Cola in the never-ending cola wars, but the #2 beverage maker is now thinking of a new strategy course — product diversification. Now, Pepsi is ceding its focus on battling Coke and preparing to challenge the likes of Dannon and General Mills in the burgeoning "yogurt wars." In the most visible sign yet of its efforts to curb its reliance on soda sales, Pepsi has announced it will start selling yogurt in the Northeast and mid-Atlantic states. The products will initially be manufactured in Europe by Theo Müller, a large privately held German dairy company that has formed a joint venture with PepsiCo to capitalize on the growing yogurt market in the United States. "We're very excited about this," said Sam Lteif, chief executive of Müller Quaker Dairy, the joint venture. "There's a huge opportunity for dairy in the U.S. market, and we're optimistic about getting into it," he added, the NY Times reports. In fact, Pepsi is feeling so confident about the new venture that the two companies are investing $206 million in a 363,000-square-foot plant in Batavia, N.Y. that will employ some 180 people and churn out five billion cups of yogurt a year. Under its chief executive Indra K. Nooyi, Pepsi has been working to decrease its reliance on sugary carbonated beverages and snacks by developing new products and retooling old ones to increase their nutritional quality while remaining true to the company's roots. The goal with Müller by Quaker is to add fun to yogurt, which Americans have regarded as a dutiful but not delicious snack. "It's been an 'I gotta have it because it's good for me' kind of a product," said Dr. Mehmood Khan, who oversees PepsiCo's global research and development, according to the Times report. "The 'wanna have it' was missing." Or as Stefan Müller, the great-grandson of Müller's founder, said: "Here in America, yogurt is so boring," the article reports.
Nooyi calls the new strategy the "fun for you, better for you, good for you" approach, and it has led to innovations that have reduced sodium in Lays potato chips and other snack chips and new sweeteners to reduce calories in juice products like Trop 50 and sodas like Pepsi Next, the NY Times reports.
Stefan Müller noted that Americans on average consumed 12 pounds of yogurt a year, or half as much as Canadians and a third the amount of Europeans. "We look at the products and it's no wonder it's so low," he said. Müller by Quaker will try to change that with what Lteif calls "mainstream premium" products that fill a gap between mass brands like Dannon and Yoplait and niche Greek yogurts like Fage and Chobani — brands whose inroads in driving new sales of yogurt gave PepsiCo confidence that there was room for another brand, reports Times writer Stephanie Strom.
Analysts have long said that PepsiCo failed to exploit the Quaker brand, which it acquired in 2000 as part of its shift to more nutritional foods. "Pepsi has so far mostly refocused unhealthy products to become healthy as opposed to leveraging and expanding the Quaker brand," said Ali Dibadj, a beverage analyst at Sanford Bernstein, in the Times article. "They've missed an opportunity with Quaker in nuts and other healthy products."
"The cola wars have abated," said John Faucher, the beverage analyst at JPMorgan Chase, in the Times story. "Pepsi is now focused on growing all the beverages it sells — teas, juices, Gatorade — and not just selling more carbonated soda than Coke at the expense of profit margins."