Carbonated Soft Drinks / Sports Drinks

PepsiCo Americas Beverages pushes forward with innovations

New beverages, fountain systems designed with customers, consumers in mind

July 11, 2014
Trans

Among the iconic, long-standing TV programs that Americans tune in to, one factor can be vital to their longevity: evolution. In “The Simpsons,” Lisa goes from always wanting a pony as a pet to being a vegetarian and a mini-activist, whereas Walter White went from being a desperate chemistry teacher to a drug lord in “Breaking Bad.” To keep audiences engaged, TV shows evolve their characters, even though the updated characters may starkly contrast with their original versions. The consumer packaged goods (CPG) market also has undergone an evolution, and PepsiCo Americas Beverages (PAB), a division of Purchase, N.Y.-based PepsiCo Inc., is making sure it is at the forefront of this evolving market.

Noting that the beverage industry encountered some difficulties last year, including weather-related events and the 2013 payroll tax increase, Al Carey, chief executive officer of PAB, says the company was not immune to these variables. In spite of these challenges, the company has seen significant improvements within the last three quarters, he adds.

Carey credits an innovative mindset that he says is intrinsic throughout every aspect of the organization for the change. “Our top line has improved; our market share has definitely improved; [and] the thing I’m most proud of is the product innovation,” Carey says. “I think the product news that we’ve had in the last 12 months has been the best that we’ve had in a very, very long time.”

Simon Lowden, senior vice president and chief marketing officer for Pepsi North America Beverages, also highlights the importance that new products and packages are playing in the company’s operations.

“Innovation has become such a lifeline for us and the category,” he says. “I look at what we’ve done in the last two to three years in North America, [and] we’ve probably almost doubled our rate of innovation in both products and packages in the last 18 to 24 months, so it’s certainly something that’s front and center in my mind.”

CSD learnings

One category that has faced its share of challenges has been carbonated soft drinks (CSDs). Carey notes that the industry is dealing with pressure related to the diet category and the use of artificial sweeteners as well as concerns relating to sugary beverages — particularly colas.

Aspartame, an artificial, non-nutritive sweetener, and its breakdown products were concluded to be safe by the U.S. Food and Drug Administration, the European Food Safety Authority and numerous independent scientific studies. However, other forms of negative mainstream attention have placed a stigma on artificial ingredients for some consumers.

Because of this consumer need state, PAB is exploring new ways to address the nutritive and non-nutritive sweetener segments. “I think we’ve been very, very visible about our desire to continue to look for ways to reduce the calories, whether through flavor technology, or through application of different sweeteners, or beginning to look for new sweeteners,” says Jonathan McIntyre, senior vice president of research and development for global beverages with PepsiCo.

He adds that the company has used non-nutritive sweeteners such as stevia in other platforms, like juice and bottled water, but will continue to look at new sweetener and flavor technologies to formulate products that are attractive to consumers and use less sugar.

“We’re looking at the use of flavors that help us reduce sugar,” he says. “It’s [in the] early stages. This is an emerging science.”

Although the company is exploring new ways to revitalize the diet CSD market, other areas of the category are on an uptick. “One of the things that’s going on that’s kind of interesting is it looks like regular cola has started to grow again,” Carey says. “Now, it’s been a very long time, maybe
10 years, since the cola category has grown. It’s just grown a little bit, but it’s growing.”

Carey notes that a number of different factors could be contributing to this change in the landscape. For instance, packaging innovations have played a role in PAB’s growth within colas and other CSD segments. The company was able to add some packaging flexibility within its plants, which have incorporated 7.5-ounce mini-cans and 12-ounce glass bottles, which both have performed well in the market, Carey explains.

These packaging innovations also can be vital for PAB’s retail customers. Mike Spanos, senior vice president and chief customer officer for PepsiCo North America Beverages, explains that packaging plays a role in three buckets: retainment, recruitment and revenue management.

For retainment, this is where the different packaging sizes come into play. “Especially on soft drinks, a lot of boomers are looking for different pack sizes,” he says. “To retain them in soft drinks — and we’ve seen this across other categories as well — a lot of the boomers want smaller sizes; they want less calories; they want packages that are more portable. So, things like mini-cans and multi-packs are examples of where you want to retain users in the category.”

When it comes to recruitment, glass bottles can be a way to bring in millennials or high-end cohorts for soft drinks, Spanos notes. Finally, package innovations can assist retailers when it comes to revenue. “They tend to be more margin accretive, so we help the retailers know how to leverage this package innovation in terms of retainment and recruitment.”

Other CSD products showing growth for PAB include Pepsi Throwback, which is sweetened with real sugar instead of high-fructose corn syrup, and Wild Cherry Pepsi, Carey reports.

“What I’m finding is people are really interested in coming back to an indulgent product that tastes great,” he says. “A cherry flavor is something that’s very popular, and now we’re starting to move against it and introducing some new products with cherry, so cherry is up for us.”  

PAB’s latest foray with cherry and cola is the summertime release of Pepsi Wild Cherry Made With Real Sugar. The company also released Pepsi Vanilla Made With Real Sugar for the summer season to complement its latest year-round product release: Pepsi Made With Real Sugar. Lowden also highlights cherry’s rebirth in the market, but notes that flavors in general will be important for the cola segment. “We’re seeing a lot of growth in flavors in colas, so that’s where we’re going to put some emphasis this year,” he adds.

Doing the DEW

Even though flavors are helping to contribute to positive growth for the cola segment, flavored CSDs also have been an important part of PAB’s business through its Mountain Dew brand.

“Mountain Dew is an incredible franchise for us,” Lowden says. “It’s one of the fastest-growing CSDs in North America. It’s done this not only because the core brand is healthy, but we’ve had smart innovation based upon what we know consumers are needing and demanding from the Mountain Dew franchise.”

Mountain Dew’s association with uplifting consumers as they prepare for their morning, afternoon or evening activities played a part in the creation of the brand’s latest successful product release: Mountain Dew Kickstart.

Because Kickstart is a focused, flavor-forward product containing juice, it allows consumers to start their day with the brand and fill a need in the consumer marketplace, Lowden says. This void in the market was discovered through PAB’s focus on consumer insights.

“In our new consumer framework, we really try and look at the epicenter of why consumers purchase, where they purchase, and what they purchase for,” Lowden explains. “By doing that, we can not only look at habits today but also through some of our data sources and predict where they will look in the future, what benefits they’ll begin to want in the future, where the big opportunities are, and, importantly, where we have brands that fit into where we have genuine white spaces.”

The success of Kickstart, which launched in early 2013, has shown in the numbers. The brand extension was one of four that PAB launched that reached $100 million in first-year sales. The others were Gatorade Frost Glacier Cherry, Starbucks Iced Coffees and Pure Leaf teas, which launched in previous years, according to Carey. And going into its second year, Kickstart sales are up in comparison with last year, he adds.

Following up on the release of the Fruit Punch and Orange Citrus varieties, which are designed for morning consumption, the company launched Black Cherry and Limeade flavors, which appeal to the nighttime drinking occasion.

“Kickstart is the most exciting innovation in beverages in North America, if not globally, in the last 10 years,” Lowden says. “It’s unbelievable. We know Mountain Dew is consumed throughout the day, and we wanted to make sure we had an offering to consumers who want something on the back end of their day.”

To better suit this day part, the company opted for stronger flavor profiles of limeade, cherries and black currant, Lowden adds.

In addition to this expanded drinking occasion, Kickstart offers the brand a chance to reach an audience that it wasn’t as strong in before.

“[Kickstart] has been a grand-slam home run, and then in some Latino markets where we didn’t seem to sell as much Mountain Dew, we put more emphasis on the Dew line of flavor extensions — some of which are more congruent with Latino tastes — and they’re doing fantastic,” Carey says. “We didn’t think we could sell Mountain Dew in these Latino markets, but if you have the right flavors, you can do it.”

These have not been the only home runs for the brand. As part of its summertime offerings, PAB released Mountain Dew Baja Blast, a variety that previously had been available only on fountain at Taco Bell, in bottles and cans.

“The simple thing is that Baja Blast has been at Taco Bell now for a number of years,” Lowden explains. “We developed the flavor specifically for Taco Bell, and it’s a very, very popular flavor for them. We want to give consumers the option of getting it in bottles or cans, which we’re doing this summer for a limited time only. It’s a big opportunity. It’s selling great, it’s well-received by consumers, they love it, and in a few weeks, it will go back to just being in Taco Bell. It’s a way of us bringing some product news to the category in what is the peak season for Mountain Dew.”

In addition to consumer excitement, the limited release of Baja Blast has generated that same enthusiasm from PAB’s key retail partners and bottlers.

“[T]he Baja Blast launch … has really taken off,” says Derek Lewis, senior vice president and general manager of North America field operations for PAB. “It’s been a huge home run, and there was so much excitement.”

Lewis adds that team members developed detailed store-level planning partnerships with store managers and associates to ensure location, inventory and store draw to nurture its release. “It exceeded expectations, so when the product finally showed up at market, it was put in the right place with the right price, and it sold through like hotcakes, to a point where …  we were replenishing [inventory] every single day because the demand was so high,” Lewis explains.

Spanos adds that success at retail for Baja Blast has had a similar effect for Taco Bell locations because of the brand awareness that it created.

“What we’re able to do there from a synergies standpoint is not only use the base business that has been working so well at Taco Bell, but now we’ve taken that [to] driving more traffic to Taco Bell, driving more awareness into the total market, and creating excitement at retail because we’re able to tell retail customers how big of a product the brand was in our foodservice side of the business.”

May I take your order?

Baja Blast showcases a prime example of PAB leveraging its foodservice business at retail, but the company also is putting a strong focus on the foodservice side of the business, leveraging its vast snack portfolio, strong beverage brands and innovative technology to win new accounts.

 “We won several big universities and several big new customers, both regional and national, including Buffalo Wild Wings,” Carey says.

PepsiCo and Buffalo Wild Wings Inc., Minneapolis, announced in late 2013 that the casual dining restaurant will carry PepsiCo’s portfolio of beverages at its company-owned and franchised locations. The two companies also will work together on culinary innovations inspired by PepsiCo’s snack brands.

“I really think Buffalo Wild Wings is one of the … premiere casual dining restaurants right now, because it’s growing so fast,” Carey says. “And it fits perfectly with our young consumer and our strong positioning in sports. We have sponsorships with the NFL, the MLB, the NHL and, of course, Dew Tour, and Buffalo Wild Wings is where people go to watch.”

But new accounts are not the only exciting news coming from the foodservice side. Coupled with the annual National Restaurant Association Show, PepsiCo announced the release of its latest innovation in fountain technology: Pepsi Spire.

The portfolio of fountain beverage dispensers consists of three state-of-the-art touchscreen machines that allow consumers to craft more than 1,000 customized beverages, the company says.

“The beverage portfolio we’re executing on our Pepsi Spire equipment gives us a chance to innovate with non-carbonated and carbonated beverages and use a combination of several different flavor shots,” says Kirk Tanner, president of PepsiCo Foodservice. He notes that the equipment can have up to eight flavor shots associated with a brand on the different machines.

This expansion of choices was a key part in the development of the technology. “We had obviously a couple of dimensions here where we’re looking at ways to deliver to our consumers’ [interests], whether that be how many different [brands] and how many different ways to personalize those with things like flavor shots, and that was where the industry was going,” McIntyre explains. “We wanted also to think a little bit more about the experience the consumer had interacting with the equipment, and, therefore, how it would set the impression of the brand. We also wanted to do it in a way that wasn’t disruptive and costly for our customers, so we looked at technologies that would provide all the benefits and that fit in with how they’re thinking about their business.”

One of the many ways PepsiCo considered the needs of its foodservice partners when developing this technology was to create different versions from which to choose. The Pepsi Spire 1.1 is a countertop self-service unit that can create as many as 40 beverage combinations and features a 10-inch touchscreen. Another countertop self-service unit, Pepsi Spire 2.0, is capable of creating as many as 500 beverage combinations using a 15-inch touchscreen. It also is available as a countertop crew-service unit for restaurant staff. Lastly, Pepsi Spire 5.0 allows consumers to create more than 1,000 beverage combinations using a 32-inch touchscreen and is available as both a self-service countertop or as a free-standing unit.

This variety of unit models enables the product to appeal to a broad set of foodservice operators, Tanner notes.

“It’s designed for small shops [and] local restaurants that have medium to low volume, all the way to the high-volume, high-traffic restaurants or outlets or movie theaters,” he says. “They can be applied anywhere there’s fountain today, even fountain [opportunities] in the future. It’s designed to be flexible, and that’s based on our customers’ needs [and] what they have available. Many customers have very small footprints, especially in the city, so you have to have a flexible portfolio so you can deliver this new technology to a broader customer base.”

Tanner adds that PAB works with its customers to select the right equipment for their space. He adds that the conversion from legacy equipment to this technology was considered when crafting the Pepsi Spire. The technology also allows the company to gain some deeper consumer insights when it comes to new product development.

“We’ve learned so much already because the equipment tells us exactly what consumers are choosing,” he says. “This is smart equipment, meaning [that] it gives us the intelligence and performance of each of those SKUs and each of the flavor shots, so we know exactly what consumers are buying, so it could influence products that we launch in retail.”

Beyond beverages, the foodservice relationship that PepsiCo has with its customers allows the company to leverage its intelligence for the food and snacks side of its business. For example, the success of the Baja Blast innovation with Taco Bell allowed the two to collaborate again with the development of Doritos Locos Tacos, Tanner explains. Noting the complementary pairing of the Mountain Dew brand and the Doritos brand within retail, the foodservice application also was a success, he adds.

“That’s what PepsiCo is,” Tanner explains. “It finds out what a customer is looking for and leverages our brands to help drive traffic, excitement [and] engagement, and that’s what we want. We want to give our customers the best of PepsiCo and access to our resources and our brands. That’s really what foodservice is when you think about all of our brands and having access to our brands and what we can bring. It’s a full portfolio of beverages and foods.”

Creating choice

Just as Pepsi Spire is creating choice within the foodservice industry, PAB is doing the same at retail — not just in the CSD category, but in all of the categories in which it has brand properties.

“For us, [innovation] is at the center of everything we’re doing right now,” says Debra Crew, president of PAB. “I think it’s an interesting time, because, from a consumer standpoint, the needs are greatly evolving, and, I think, without innovation you would fall behind, so it’s absolutely at the center of everything that we’re doing.”

As the company looks to create these new innovations, it is tasked with the job of offering products that not only taste great but also hit on some top health concerns, including calorie counts, valued-added formulations and nutrition benefits. One category gaining attention as of late has been the bottled water category, particularly the sparkling and mineral water segment.

“Water is such a huge category, a very fast-growing category,” Lowden says. “Quite a lot of innovation is happening, and we saw that we didn’t have a proposition for a zero-calorie
water-based beverage focused against the young teenagers, and that’s what [Aquafina] FlavorSplash does — bringing the fun of flavor and the goodness of water together to teenagers.”

Released in late 2013, Aquafina FlavorSplash sparkling waters contain B vitamins and are available in Color Me Kiwi, Peelin’ Good and Berry Loco varieties. The company also released liquid concentrates under the same name that can be used to enhance the flavor of still bottled waters. Those products are available in So Strawberry, World Peach and Berry On varieties.

Carey notes that health and wellness propositions are a key consideration during product and packaging development. In fact, dating back to 1998, before PepsiCo purchased the Tropicana brand and businesses, about one quarter of its portfolio was made up of healthier drinks, such as low-calorie, zero-calorie juice and sports drinks. Now that number has doubled, he says, and the company is hoping to drive it even higher.

“This is the best year we’ve had in a long time,” he says. “Next year’s going to be even better, and the product news is going to be bigger. Most products will have zero or no calories or be juices or sports drinks.”

This strategy has especially paid off for the company’s Gatorade portfolio. Carey notes that the brand is up and also is strong on the innovation front. Building on its rich history, Gatorade has a Sports Science Institute that works with elite athletes to develop food and beverages to support athletic needs and occasions, Crew explains.

On the beverage side, the company has developed Gatorade products that contain value-added protein but also is creating more flavor options that appeal to consumers. Last year, PAB test-launched Gatorade Strawberry Lemonade within 7-Eleven outlets and found such strong success that it now is rolling out the variety nationwide. And now this year, it is performing that same trial with Gatorade Fierce Green Apple.

“7-Eleven has helped us develop some of our most successful flavors,” Crew says. “Last year we had Strawberry Lemonade with 7-Eleven that did very well, and now we’re expanding distribution across other channels and customers. This year we’ve launched Green Apple, [which] is also off to a terrific start.”

Spanos notes that the company’s relationship with 7-Eleven has been an important incubation element to the Gatorade brand. “What we do is we incubate with 7-Eleven, and they will build the brand,” he says. “We found with both these brands, they’ll register in the Top 5 non-alcoholic single-serve units during that incubation.”

Just like with its CSD portfolio, PepsiCo has been active on the packaging side with Gatorade. The company released a new bottle that is more convenient for consumers to grip and transport during their athletic activities, Crew explains.

In addition to targeting the active consumer, PAB is successfully targeting health-conscious consumers with products that offer more fruits and vegetables, such as its Naked Juice brand and its latest brand extension, Tropicana Farmstand.

“One of the great benefits of Tropicana Farmstand is it’s one serving of fruit and one serving vegetables in every serving,” Crew says. “Everyone is trying to get more vegetables in their diets, but one of the things about vegetables is sometimes they don’t taste that great, so with Tropicana Farmstand, it’s delicious and great-tasting juice where you have a full serving of vegetables as well as the serving of fruit, and consumers have really responded to it.”

The company also took notice of a popular vegetable as of late with its Naked Juice Kale Blazer. “Kale is one of the hottest food trends out in restaurants, and [it] certainly can even be seen in grocery stores,” Crew explains. “You used to have to dig a long way to find kale, and [now] it’s kind of front and center in the produce section, and you’re starting to see it in more forms, but a lot of it has been food forms.”

Because of this gap in the market-place, the company developed Kale Blazer, and the product is off to a strong start, she adds. “I think it’s because it’s a great-tasting kale item, and it provides all of the benefits you get from kale,” she says. “That’s another great example of taking a health-and-wellness trend that was in the food form and bringing it over to a convenient beverage format.”

But health and wellness wouldn’t be complete without talking about the emergence of coconut water. Through its majority stake in O.N.E. coconut water and brand extensions with Naked Juice that include 100 percent coconut water and coconut-water-based smoothies, PepsiCo is offering consumers this alternative form for hydration.

“We’ve got a couple of different options of coconut water within the portfolio that are great options. For consumers looking for a natural hydrator, coconut water absolutely fulfills that need,” Crew says.

Although O.N.E. does not have any new products in the market just yet, Crew notes that this is an area that the company plans to explore more next year.

PepsiCo also is working with its joint venture partners Starbucks Coffee Co., Seattle, and Unilever, London, to offer products that have lower calorie counts, Carey notes. For example, as part of the North American Coffee Partnership, the companies released Starbucks Iced Coffees, which amalgamate Arabica coffee beans with 2 percent milk to offer a lower-calorie option. Through the Pepsi Lipton Tea Partnership, Lipton Pure Leaf offers a Not Too Sweet tea line that has 50 percent less sugar and contains no artificial sweeteners, Carey explains.

 “If you look at everything we’re coming out with, the way we’re doing it is everything has got to be healthier,” he says. “We’ve just got to do it.”  

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