PepsiCo is accelerating the development of plant-based foods it hopes could one day rival sales generated by some of its popular chip, tea and soda brands.
The CPG's snack portfolio, which includes everything from Doritos and Sun Chips to Sabra hummus and Quaker oatmeal, has long depended on plant ingredients such as corn, chickpeas and oats. But PepsiCo is moving aggressively to expand its offerings to prioritize the use of plants that provide functionality attributes and have a more environmentally friendly footprint.
“Our core brands utilize agricultural commodities, but this is more than that. This is also positive nutrition on top of that," said René Lammers, PepsiCo's chief science officer. "Ultimately, we want to make this a much bigger play for us.”
During PepsiCo's February earnings call, CEO Ramon Laguarta singled out plant-based snacking as a category the company is using to generate future growth. PepsiCo posted sales of $70.37 billion in 2020, an increase of 5% from the prior year. Organic revenue is forecast to increase in the mid-single digits in 2021, in line with its long-term outlook.
Giving consumers more choice
To fuel its long-term growth in plants, PepsiCo has entered into a series of acquisitions, new product introductions and extensions to existing brands.
The company's juice and smoothie brand Naked Juice introduced in January a product that blends pea and soy protein. The drink builds on Naked's other plant-based protein beverages that include a combination of fruits and a few that mix together whey and soy.
Anup Shah, vice president and chief marketing officer of the juice portfolio at PepsiCo Beverages North America, which includes Naked Juice, Tropicana and KeVita, said his segment is "dabbling" in plant-based options. While he said the juice portfolio doesn't plan to shift entirely to alternative proteins, Shah expects future product launches to give shoppers more choices.
"We know consumers are asking for more plant-based options and so we're trying to deliver on that consumer need," he said.
Among the biggest announcements for PepsiCo came in January when it established a joint venture called The PLANeT Partnership with Beyond Meat that will develop, produce and market snack and beverage products made from plant-based protein.
In 2018, PepsiCo also has purchased plant-based protein bar, mix and snack maker Health Warrior and baked fruit and vegetable snack manufacturer Bare Foods. Hilo Life, a brand within PepsiCo’s Hive accelerator, recently launched an almond flour-based tortilla chip.
"Our core brands utilize agricultural commodities, but this is more than that. This is also positive nutrition on top of that. Ultimately, we want to make this a much bigger play for us."
Chief science officer, PepsiCo
And Evolve, a maker of plant-based bars, shakes and powders that uses pea protein, was overhauled in March with new packaging, advertising and flavor profiles to raise brand awareness. PepsiCo purchased Evolve as part of a $465 million deal with Hormel Foods in 2019 that also added Muscle Milk to its portfolio.
PepsiCo's new plant-based brands may look "relatively modest in scale," Lammers said, noting new product launches can often be capital intensive. "But our intent, of course, is to scale these as fast as we can when we hit a consumer win. Just doing small, quick-cycle ideas for the sake of it is not the business we’re in."
'Kind of the wild west out there'
The food and beverage giant's investment in plant-based products is happening as consumers embrace the segment's environmental and health halo.
A 2018 study from DuPont Nutrition & Health found 52% of people who eat more plant-based food said it makes them feel healthier. That perception has only increased since the emergence of COVID-19. According to Nielsen data, sales of snacks promoted as part of a plant-based diet rose 10.5% during the 52 weeks ending Jan. 16, 2021. Plant-based beverage sales increased 13.5% during the same period.
John Boylan, a senior equity analyst with Edward Jones, said PepsiCo’s expansion into plants comes at a time when other major players in the space, like Conagra Brands, Kellogg, Hormel Foods and General Mills, are growing their own presence in the fast-growing category.
Boylan said with the latest surge of consumer interest in plant-based foods in its infancy, he’s keeping a close watch on PepsiCo to glean more information on its long-term strategy compared to that of its competitors. While the company’s success is far from certain, PepsiCo’s dominance in snacking will at least cause retailers to listen about the new items it plans to introduce.
"The one thing to keep in mind is this is still kind of the wild west out there with a lot of innovation and a lot of opportunities for a number of players involved, but it’s going to take time to unfold," he said.
Plant-based food retail sales totaled $7 billion in 2020, posting a 27% growth rate overall for products that specifically replace animal-derived options, according to SPINS data released by the Good Food Institute and the Plant Based Foods Association. A total of 57% of U.S. households purchased plant-based food in 2020, up from 53% in 2019.
Investment firm UBS predicted in 2019 that plant-based food would be an $85 billion industry by 2030.
Overcoming obstacles with plants
As companies incorporate more plant-based ingredients, there are a series of hurdles they need to overcome. Lammers said before PepsiCo can incorporate a pea, rice or other alternative protein into a new or existing product, it must closely study the ingredient. Scientists not only review the "nutritional credentials" it brings, but also determine how and where it's grown, the impact on the environment when it comes to inputs like water and, of course, its impact on taste, he said.
The snack and beverage maker also needs to ensure it can procure enough of the ingredient, determine how it will be processed and manufactured and whether new equipment will be needed to do it.
"There are always a couple of overarching challenges you face when you switch significantly an ingredient," he said. "We need to think completely end to end when when you switch some of these ingredients."
PepsiCo's snack portfolio has a diverse mix of well-known brands like Cheetos, Rold Gold pretzels and Lay's potato chips. Lammers said despite decades of expertise in snacks, where it has developed deep insight into flavors, seasoning and packaging, PepsiCo knows that other companies are more familiar with how to work with plant-based ingredients and their characteristics, including how to texturize and process them.
It's a big reason why PepsiCo entered into the joint venture with Beyond Meat.
“We don’t always have the capabilities in-house," he said. "I have to be open and honest and say 'Okay, this is a new territory for us.' "
Lammers said PepsiCo is planning further plant-based product offerings this year, though he declined to go into detail. While the category is an important part of the company's growth, it hasn't outlined specific revenue targets.
“We just clearly have an intent to go where the consumer is going," Lammers said, "and knowing PepsiCo, we will succeed and will build brands in the plant-based space that hopefully in a few years will become household names."