PepsiCo Builds on Performance with Purpose Initiative

Two-thirds of its beverages to have fewer than 100 calories from sugar per 12 ounces serving

p1Food and beverage heavyweight PepsiCo Inc. (NYSE: PEP) has set a target for reducing the amount of sugar in its soft drinks globally after coming under increasing pressure from health experts and governments for fuelling obesity and diabetes, as reported by Reuters on October 17th, 2016. The New York-based company said that by 2025, at least two-thirds of its beverages will have 100 calories or fewer from added sugar per 12 ounces serving, up from about 40% now. PepsiCo plans to achieve this by introducing more zero and low-calorie drinks and reformulating existing drinks. PepsiCo says the new global target is more ambitious than its previous goal of cutting sugar by 25% in its drinks in certain markets by 2020.

PepsiCo, as part of its 2025 sustainability agenda, is focused on a three-pronged strategy for growth: improving well-being through its products; helping reverse climate change through water efficiency and reduction of greenhouse gases; and empowering people globally. Apart from reducing added sugar, the Company also stated that three-quarters of its global food portfolio volume will not exceed 1.1 grams of saturated fat per 100 calories and 1.3 milligrams of sodium per calorie. PepsiCo also said that by 2025, the rate of sales growth of Everyday Nutrition products would outpace the rate of sales growth in the balance of PepsiCo’s portfolio. p2The Company would also provide access to three billion servings of nutritious foods and beverages to under-served communities by 2025.

Beverage major faces consumer backlash

PepsiCo’s announcement comes after the World Health Organization recommended that all countries must impose taxes on sugary drinks, as done by the government in France and Mexico, to curb consumption and improve health. While the soft drinks industry opposes such taxes, beverage companies are taking steps to improve the nutritional value of their products over concerns of consumers boycotting their products.

Rival Coca-Cola Co. (NYSE: KO) has said that by 2020, it would offer low-calorie or no-calorie options in every market as part of its sustainability goals. Other beverage manufacturers such as Dr. Pepper Snapple Group Inc. (NYSE: DPS), Kellogg Company (NYSE: K), Mondelez International Inc. (NASDAQ: MDLZ), Monster Beverage Corp. (NASDAQ: MNST), Nestle S.A., Red Bull GmbH, and Snyder’s-Lance Inc. (NASDAQ: LNCE) have taken similar steps to impart nutritional balance to their beverages.

PepsiCo is building on goals set out in 2006, which targeted nutritional, environmental and social improvements. Over the past five years, PepsiCo has saved $600 million from reduced water, packaging and energy use, as well as a reduction in waste. Over the past decade, average returns on investments in this area have been better than the cost of capital. Other targets include a 15% improvement in the water efficiency of PepsiCo’s direct agricultural supply chain in water-stressed areas by 2025 and a 20% drop in greenhouse gas emissions across its supply chain by 2030.

Move towards plant-based sweeteners

p3PepsiCo, which makes 7Up, Mountain Dew and Pepsi fizzy drinks, made the first move to reduce sugar in its beverages in India in August 2016, when it began testing 7Up with plant-based sweetener stevia instead of sugar. The move has led to reduction of 30% sugar content in 7Up, the first use of stevia to sweeten 7Up anywhere in the world. Henceforth, PepsiCo will extend the usage of stevia to other brands in its Indian portfolio. Globally, PepsiCo’s mainstay brand Pepsi cola earns over $1 billion annually. Fizzy drinks contribute to less than 25% of PepsiCo’s global sales now, according to data by global research firm Mintel.

Building on Performance with Purpose

On account of growing consumer backlash in regards to more healthy foods and beverages, PepsiCo has transformed its product portfolio with a particular focus on reducing sodium, saturated fats, and added sugars. As compared to 2006, PepsiCo has reduced the average sodium in its food products by 11% per serving and removed more than 2300 metric tons of sodium from key global food brands in key countries. PepsiCo has also reduced the average amount of saturated fat per serving by more than 15% in key global brands in a number of major markets including the U.S., the U.K., China and Turkey. PepsiCo is also trying to reduce added sugars in its beverages through reformulation.

The Company has adopted new technologies and processes that have steadily reduced its water use by unit of production and has implemented integrated water management in water stressed and water scarce areas. As a result, PepsiCo is using approximately 25% lesser water per unit of production. The new targets also encompass environmental goals including reducing food waste by 50% by 2025 and designing 100% of its packaging to be recyclable by 2025.

p4Focus on health and wellness

PepsiCo recently launched Quaker Super Goodness porridge sachets in the U.K. made with whole-grain oats, quinoa, barley, and flax seed. It also introduced Carrot Pineapple Mango Tropicana Farm Stand in the U.S. made with 100% fruit and vegetable juices and no added sugar. PepsiCo’s Naked super premium fruit and vegetable juices and coconut waters, which contain all-natural ingredients and no added sugars or preservatives, was recently extended with the introduction of Naked cold pressed juices. PepsiCo has doubled Naked’s net revenue over the last six years and grown estimated annual retail sales to over $1 billion.

p5Another health and wellness brand set to reach $1 billion in sales is Sabra, currently an $800 million business in the U.S. The company’s Propel Water by Gatorade, a zero-calorie sports beverage enhanced with electrolytes and minerals, is seeing renewed success in North America, with year-to-date volume up 6%.

PepsiCo is elevating its Pure Leaf Tea brand, which has grown to more than $650 million in estimated annual retail sales, since its launch in 2012, into a super premium line under the Tea House collection. p6Spurred by the success of Baked Lays, PepsiCo has launched Baked Doritos, Baked Tostitos and Baked Cheetos in nine international markets.

The company has also recently launched Stubborn Soda, a new generation of premium crafted sparkling beverage that is just 90 to 100 calories per 12 ounces and is made with fair trade certified cane sugar and stevia with no high fructose corn syrup.

PepsiCo Chairperson and CEO Indra Nooyi stated:

To succeed in today`s volatile and changing world, corporations must do three things exceedingly well: focus on delivering strong financial performance, do it in a way that is sustainable over time, and be responsive to the needs of society. PepsiCo’s journey is far from complete, and our new goals are designed to build on our progress and broaden our efforts.

Stock Performance

p7PepsiCo’s stock stood at $106.26, slipping 0.65%, at the close on Wednesday, October 19th, 2016, having vacillated between an intraday high of $107.01 and a low of $106.08 during the session. The stock’s trading volume was at 4,323,336 for the day. The Company’s market cap was at $152.80 billion as of Wednesday’s close.

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