Tuesday, August 12, 2003

A new Pepsi challenge

Business tries to lose its image as junk-food vendor

By Abigail Klingbeil
Gannett News Service

PURCHASE, N.Y. - As Americans have become more interested in taking control of their health and as obesity in the United States has reached near-epidemic levels, PepsiCo Inc. has made health and nutrition a major part of its growth strategy.

This might sound surprising, especially to people who think PepsiCo just makes junk food. PepsiCo's product lineup, greatly transformed since the late 1990s, now includes brands closely associated with healthy eating, including Tropicana and Quaker.

PepsiCo Chief Executive Officer Steve Reinemund says his goal is that 50 percent of the company's new products be nutritious in some way. He is convinced that all PepsiCo products, even Cheetos and Wild Cherry Pepsi, can be part of a healthy diet.

PepsiCo recently divided its products into three categories that demonstrate its strategy:

•  "Fun-For-You" indulgent products such as Doritos and Mountain Dew represent the largest piece of PepsiCo's pie, with 62 percent of North American sales volume last year.

•  "Better-For-You" products with fewer calories and less fat, such as Baked Lays and Diet Pepsi, represent 22 percent of sales.

•  "Good-For-You" products with a high nutritional content, like Quaker Oatmeal and Tropicana orange juice, account for 16 percent of sales.

Marion Nestle, author of Food Politics: How the Food Industry Influences Nutrition and Health, is skeptical of PepsiCo's motivations.

"The argument that all foods can be part of a healthy diet is the favorite argument of the food industry," Nestle says. She sees Baked Lay's and PepsiCo's attempts to make healthier versions of its products as just a way to sell more food. "It's still junk food."

PepsiCo tapped one of its veteran executives, Brock Leach, to head up its health and wellness initiative. Leach has lost 20 pounds in the past year after beginning a regimen of exercising regularly and carefully monitoring his diet.

"When I get up in the morning I have a Quaker Oatmeal Breakfast Square and a glass of Tropicana Pure Premium, so I get the nutritional density from the orange juice and the oatmeal," says Leach, PepsiCo's chief innovation officer and senior vice president of new growth platforms. He usually has a salad, Diet Pepsi and a sweet treat for lunch, then a PepsiCo product like Baked Lays or a Quaker granola bar for an afternoon snack. For dinner he typically eats vegetables along with a low-fat protein such as fish.

Sure, Leach sounds like the veteran PepsiCo marketer that he is, but he's trying to make his point crystal clear: People can lose weight while incorporating PepsiCo products into their diets.

PepsiCo's brand strategy is on the right track, according to some analysts and based on the company's recent profit and stock performance. Since the beginning of the year its share price has increased 4 percent. Its $3.3 billion in profits last year marked a 24 percent increase over the previous year.

Reinemund points out that this is not an overnight strategy change. The company introduced Diet Pepsi in 1964 and a line of low-fat and baked chips in the 1990s.

The company's offerings became noticeably healthier starting in the late 1990s. In 1997, it spun off its Taco Bell, Kentucky Fried Chicken and Pizza Hut restaurant business. In 1998, it acquired Tropicana and in 2001 it bought The Quaker Oats Co.

Reinemund links PepsiCo's push to make its products and the country healthier to the notion of corporate responsibility. He says PepsiCo's consumers, employees and investors have to trust PepsiCo in order for it to become a "world-class" company.

"Students coming out of school today don't want to work for a company that doesn't have the right corporate values and ethics," Reinemund says.

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