PepsiCo in multibillion-dollar health drive
PepsiCo is to spend billions of dollars to develop drinks and snacks and reformulate existing ones with lower sugar, salt and fat content, as consumers demand healthier options and regulatory pressure intensifies amid an obesity epidemic.
The maker of Mountain Dew and Gatorade has been one of the earlier movers in the industry to offer products with reduced levels of unhealthy ingredients — PepsiCo claims a packet of its crisps now contains less salt than a slice of white bread. However, its new 10-year plan makes clear it believes it still has a long way to go.
Shifting eating habits, including a sharp drop in consumption of fizzy drinks such as Pepsi, have forced radical change on the industry. But those shifts have yet to be reflected in record obesity levels, which stand at 36.5 per cent overall in the US.
Indra Nooyi, PepsiCo chairman, told the Financial Times that the plan to make its products healthier was important for the company’s growth.
But on the subject of obesity, she pointed out that consumers’ lifestyles have changed significantly, with many people being more sedentary not least because more time is spent in front of computers. She said PepsiCo’s contribution was to produce healthier snacks that still tasted good.
“Even before people were talking about obesity, we saw consumer trends shifting and realised we couldn’t keep growing the top line” without making radical change, Ms Nooyi said. “These goals are related to growing the top line.”
She added: “Society has to change its habits. We can’t do much to [alter] sedentary lifestyles, but we can provide consumers with great-tasting products, low in salt, sugar and fat. In the past we had to have a taste trade-off. But we’re breaking that trade-off.”
PepsiCo’s plan for its foods and drinks is part of broader targets set by the maker of Sabra hummus and Naked juices, based on guidelines from the World Health Organisation, which last week backed using taxes on fizzy drinks to reduce sugar consumption. Initiatives include efforts to reduce its environmental impact, water consumption and materials used in packaging by 2025.
PepsiCo will cut the number of calories from added sugar per 12oz serving to less than 100 in “at least” two-thirds of its global drinks portfolio. Nearly 40 per cent of its drinks in its 10 biggest markets, which account for 80 per cent of its revenues, already meet this goal.
More than three-quarters of its food products globally will contain 1.1g or less of saturated fat per 100 calories, while the same proportion of its snacks worldwide will contain 1.3mg or less of salt per calorie. About half of its global food products meet those targets now.
Rivals such as Coca-Cola and Mondelez International, both of which have been diversifying their portfolios away from unhealthy food and beverages, have plans to reduce sugar, salt and fat — but targets are difficult to compare.
Coca-Cola aims to offer low or no-calorie drinks in all of the 200-plus markets it operates in by 2020, and has so far reached that goal in 191 of them. Mondelez aims to have half of its snack offerings defined as “well being”, an ambiguous term, by 2020 and to reduce saturated fat and sodium by 10 per cent in its products. Its sugar-reduction target has not been made public.
PepsiCo did not say exactly how much it planned to invest to reach its goals. However, Dr Mehmood Khan, chief scientific officer, said the company had doubled research and development spending in the past five years and was “committed to sustaining investment”, adding that companies cannot cost-cut their way to increasing sales. PepsiCo’s R&D budget in 2015 was $754m.
Dr Khan said the broader commitments that PepsiCo had made in the past to reduce energy consumption, use water more efficiently and reduce waste had generated $600m in savings. The new 10-year plan includes replenishing all the water it uses in “high risk areas” to the same watershed, as well as further initiatives to cut energy use and waste.