PUSH FOR HEALTHIER PRODUCTS
PEPSICO’S CEO NOOYI’S PUSH FOR HEALTHIER PRODUCTS PUTS SPOTLIGHT ON QUAKER FOODS
After a decade in the shadows of potato chips and soda pop, Quaker Foods is emerging as a key strategic growth line for PepsiCo Inc.
PepsiCo CEO Indra Nooyi wants to boost sales of healthier products to $30 billion annually from $10 billion in the next decade, and she has identified Chicago-based Quaker as one brand that will fuel the growth. Another is PepsiCo’s Tropicana unit, also based in Chicago.
“Good-for-you products is a huge growth area,” Ms. Nooyi told the Economic Club of Chicago this month, singling out the importance of the company’s “health and wellness businesses existing in Chicago.”
Quaker’s oatmeal and granola bars, along with Tropicana’s fruit juices, are among the healthier offerings at Purchase, N.Y.-based PepsiCo, best known for its sodas and Frito-Lay snacks.
Ms. Nooyi’s strategy likely means more investment and hiring at Quaker, but it also will increase the pressure on the brand’s president, Jaya Kumar, to rekindle sales growth.
Quaker hasn’t garnered this kind of attention since PepsiCo bought the company in 2001, mostly for its Gatorade sports drink business. Some expected PepsiCo to unload the food businesses after completing the acquisition.
Gatorade quickly became one of PepsiCo’s fastest-growing products, while Quaker averaged only about 3% annual sales growth. Quaker’s volumes in North America have been down or flat for the past two years, and dollar sales fell 1% to $1.88 billion in 2009.
Mr. Kumar, who declined an interview request, took charge of Quaker in October after a stint as marketing chief at Frito-Lay. His challenge is to develop new products that will spark sales growth.
CEO Indra Nooyi wants to boost PepsiCo’s sales of healthy products. “It is clear that Quaker is going to be given some more resources, and the pressure is going to be on,” says Christopher Collins, an analyst in Chicago at Fitch Ratings. “But Pepsi is a company whose expertise and personnel are more geared toward snack food and soda vs. healthier segments.”
Mr. Collins predicts PepsiCo will face stiff competition from rivals including Kellogg Co. and General Mills Inc., which offer healthy brands such as Special K and Nature Valley, respectively.
Quaker has expanded its granola bars and cereal lines in recent years but needs to pump out more new products to achieve significant gains, analysts say.
“The challenge is they need to extend the brand, and they need to extend it into the right places, because if you push it too far, you can dilute the brand’s equity,” says Mark Payne, president of Fahrenheit 212 LLC, a New York-based product innovation firm. “The key is if they are able to hit an innovation home run or just a lot of singles. It’s very challenging to find the next home-run move.”
Quaker must develop fast-growing products to provide a significant boost to PepsiCo, the world’s second-largest food and beverage company, with $43 billion in annual sales.
“They are really pushing areas that can promote an image of the company providing healthier products, and Quaker fits that image,” says Don Yacktman, president of Texas-based Yacktman Asset Management Co., which owns about 3.8 million PepsiCo shares. “But it will be a challenge and could take a long time to make a big difference for PepsiCo.”
By David Sterrett
Crain’s Chicago Business