PepsiCo, Inc. (PEP) recently launched two new flavors of its Lay’s branded potato chips, Lay's Kettle Cooked Applewood Smoked BBQ and Lay's Kettle Cooked Sun-Dried Tomato and Parmesan under its Frito-Lay segment. The new flavors have 40% less fat than ordinary potato chips. They will be available all over the nation in 8 oz packages.
With the consumers increasingly becoming health conscious, there is a huge demand for snacking products that taste good and better for their health. The two new flavors of Lay’s chips are aimed to meet this need of health conscious consumers.
Earlier this year, the company had launched Pepsi Next, which contains 60% less sugar to attract the health conscious consumers. Changing consumer preferences toward healthier drinks, as a result of increasing health consciousness, have been affecting the company’s carbonated soft drinks volumes.
Product innovation plays a huge role in the company’s success. The company regularly creates new flavors of existing products as well as maintains a robust pipeline of new products. For example, in June 2012, Pepsi introduced Baked Three Cheese Queso and Toasted Southwestern Spices flavored tortilla chips under Tostitos Artisan Recipes.
The company also utilizes new packaging to shift consumers to more profitable purchases. The company’s 24-ounce can for regular and diet Dew is generating good customer response.
The company also focuses on premium innovation to drive higher net price utilization. At the premium end, some recent product launches include Quaker Real Medleys hot cereals, Stacy's Gingerbread and Stacy's Cocoa and Lay's Stax potato chips. In 2012, the company aims to double the contribution of new products to total revenue in both snacks and beverages globally.
Currently, PepsiCo Inc. carries a Zacks #3 Rank in the near term (Hold rating). We are encouraged by the company’s strong brand portfolio, its product and geographic diversity and solid cash flow generation. Moreover, PepsiCo’s marketing support investments, brand building innovation and cost saving efforts will boost growth in the long term.
However, a challenging consumer spending environment combined with higher commodity costs are matters of concern. Further, the company faces strong competition from The Coca-Cola Company (KO). In U.S. measured channels, The Coca-Cola Company commands a larger share of carbonated soft drinks (CSD) consumption. The Coca-Cola Company also enjoys higher market share in many markets outside the United States than PepsiCo.
Headquartered in Purchase, New York, PepsiCo, Inc. is the leading global food and beverage company marketing hundreds of brands in more than 200 countries. Its principal businesses include: Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods.
PepsiCo’s overall product portfolio includes 22 brands including Pepsi, Mountain Dew, Gatorade, Tropicana, Lay's, Doritos, Cheetos and Quaker, all of which generate more than $1 billion each in annual retail sales.
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