As the largest food and beverage company in North America, and one of the biggest in the world, PepsiCo is continuously innovating with precision to drive top-line and bottom-line growth. And over the course of the past decade, we have done just that.
To be sure, for decades we delighted consumers, managed the company judiciously, and were rewarded with sustainable business growth. However, by the early 2000’s, technology accelerated the pace of change. The modern consumer expected companies to deliver products that were functionally differentiated. To accomplish this would require an R&D organization grounded in deep consumer insight, unmatched product design, and new scientific and technological capabilities.
Accordingly, inside PepsiCo R&D, we knew we needed to shape the business environment in which we operated rather than simply react to it. So beginning in 2007, we resolved to help transform our company and our food and beverage portfolio by broadening it.
We pledged to evolve from a “Go-do” R&D function that simply executes product line extensions to a “Go-to” global R&D function that, with exacting precision, delivers new innovative products and new categories; a “Go-to” function that with precision provides consumers great taste, more nutrition, and offerings with less added sugar, salt and fat; a “Go-to” function that shareholders recognize as contributing to our company’s top-line growth, resulting from the precision of our R&D strategy. Here’s how we did it:
We imported new thinking into PepsiCo R&D. New people with new ideas and capabilities—experts in disciplines such as agronomy, computational biology, computer modeling, exercise physiology, endocrinology, fluidics, metabolomics, and rheology, among others.
We adopted a new, more rigorously science-based, research direction. An R&D function that was for decades focused almost exclusively on the consumer’s taste experience began to focus on the consumer’s entire body (i.e., overall biology) and preference drivers (i.e., taste, aroma, texture, convenience) to deliver the right product offerings.
This evolution resulted in an expanded, more diversified portfolio featuring our traditional “Fun for You” products such as Pepsi, Lay’s, Mountain Dew, and Doritos; “Better for You” products such as Baked Lay’s, Diet Pepsi, and Stacy’s pita chips; and “Good for You” products such as Quaker, Tropicana, Trop50 (with 50% less sugar and calories than regular juice), Tropicana Farmstand (a fruit and veggie juice offering that provides one serving of fruit and veggie with each serving), Naked Juice and Smoothies, Naked Nutmilk, Naked Coconut Water, Gatorade (which includes protein shakes and bars) and Sabra hummus, to name a few.
Here are two examples of the type of precision R&D innovation that comes to life at PepsiCo:
- First, at our Gatorade Sports Science Institute, we’re studying new and innovative ways to help athletes improve performance through proper hydration and nutrition. We accomplish this by using science to garner deep consumer insight into how athletes’ bodies expend and replenish energy. For example, we conduct “sweat tests,” measuring an athlete’s body weight before and after a workout—as well as amount of fluids consumed during the workout—to determine how much fluid was lost, and how much liquid will be required to replenish the body and optimize performance. Breathing tests measure both an athlete’s current performance and future potential. Additional tests measure peripheral vision, reaction time and hand-eye coordination. These insights in turn enable us to create functionally-advantaged products—among them our new Gatorade Smart Bottle.
- Second, we fortified our nutrition credentials further with new innovation across our Quaker portfolio. The introduction of our Real Medleys products in 2012 contemporized the brand. Quaker’s offerings include Real Medleys hot cereals in convenient cups, ready-to-eat cereal, instant Oatmeal with 50% less sugar, Quick three-minute steel cut oatmeal (down from 30 minutes cooking time), Real Medleys Super Grains, Quaker Protein Instant Oatmeal, and Quaker chews and breakfast bars.
We created a new structure, evolving from a decentralized organization to a globally aligned, flexible, responsive one. This meant expanding from a North America-focused R&D operation to a geographically diverse organization with R&D centers of excellence in Asia, Europe, and Latin America, in addition to North America. For a company that had for decades innovated almost exclusively from America and exported abroad, this marked a new era of creativity and collaboration with our PepsiCo colleagues on a global scale, with new product innovation just as likely to occur in Beaumont Park, UK, or Dubai or Shanghai as in Plano, Texas or Valhalla, New York (the US R&D hubs for snacks and beverages, respectively).
This new structure helped us migrate from “products” to “platforms.” In other words, we could now build a “new global chassis” at any R&D facility and then quickly export it, supporting PepsiCo operations worldwide to customize a food or beverage innovation to satisfy local tastes market-by-market. This combination of global offerings made locally relevant we call our “Glo-Cal” strategy—and it has served us tremendously well.
We did this with great success with Ruffles Deep Ridged potato chips. After listening to consumers, we learned there was a consumer base looking for a heartier and deeper ridged potato chip.
That’s why in 2012 we launched Deep Ridged potato chips in the US. Now available in 25 countries in just three years, Deep Ridged quickly established itself as “The crunch enjoyed around the world.” These chips were no mere “line extension.” Instead, Deep Ridged represents the pinnacle of precision innovation at PepsiCo. The potato chip fundamentally re-imagined: a chip discovered via deep consumer insight; a chip guided in its development by culinary science and art to appeal to local palates in 25 countries; and a chip developed using 3D printing technology, computer modeling, and proprietary slicing technologies.
We embraced next-generation engineering excellence. PepsiCo R&D is re-inventing the soda fountain, having worked collaboratively with its internal business partners to match the latest technology and design concepts with consumers’ rapidly changing preferences for customization when drawing soft drinks from fountains. The result: PepsiCo’s Spire, which provides nearly limitless flavor combos and an entirely new consumer experience in the hands—or, more accurately, at the fingertips—of the consumer.
We formulated a new strategy. Then, with rigor and precision, we executed against it. The result: our investments in R&D at PepsiCo—up more than 35% since 2011—unleashed innovation, creating a competitive “advantage gap” for the company that widens as the company continues to innovate and re-invest. Consider:
- Our growing nutrition offerings today account for approximately 20% of our net revenue.
- We had ten of the top 50 new food and beverage products introduced in North America in 2014. This up from 9 of the top 50 in 2013.
- A number of our recent product introductions, like Tostitos Cantina, Mountain Dew Kickstart and Pure Leaf, generated double-digit estimated annual retail sales growth in 2014 after achieving more than $100 million in their launch year. One noteworthy highlight: Mountain Dew Kickstart is today nearly a $300MM brand. A mid-calorie, carbonated soft drink with 5% juice (80 calories per 16 oz.), Mountain Dew Kickstart was designed for consumers looking for a pick-me-up in the morning and evening. We recently innovated further by introducing Mountain Dew Kickstart with coconut water and 10% juice (60 calories per 12 oz.)
- Our innovation successes enhance our relationship with retail customers, too: With Taco Bell, we collaborated to create Doritos Locos Tacos, a brand that translated into a billion dollars in sales for Taco Bell the first year. Likewise, in 2014, PepsiCo was named 7-Eleven “innovation partner of the year” and PepsiCo captured the Walmart US “Supplier of the Year” award in the Total Food and Beverage category.
- Today we have 22 billion-dollar brands in our portfolio. This is the direct result of our constant, never-ending process of innovation. In fact, we’ve grown the number of billion-dollar brands by nearly 30% since 2006. We have another 40+ brands in our portfolio that generate $250 million to $1 billion in estimated annual retail sales, creating attractive opportunities for continued innovation and growth across the portfolio. Many of these 22 billion-dollar brands are iconic, category-leading brands that have been consumer favorites in the marketplace for years—and that is by design. We don’t rest solely on the equity of those brands; our R&D teams are constantly innovating and transforming to stay ahead of consumer trends.
As a result of our self-disruption, R&D is reinventing PepsiCo from the inside. Innovation is now generating 9% of net revenue at PepsiCo (up from 7% in 2012). More than ever, PepsiCo’s Global R&D organization is helping drive PepsiCo’s business by providing unrivaled technical skills and capabilities to offer more enjoyable and nutritious foods and beverages to more people, in more places, engendering more trust worldwide.
An academy R&D organization, we enlist experts to drive science, technology and innovation thought leadership. Working with strategic precision and in partnership with our PepsiCo business partners, Global R&D is delivering on today’s business and market priorities as well as the sustainable growth opportunities of tomorrowMehmood Khan, M.D., is PepsiCo’s Vice Chairman and Chief Scientific Officer of Global Research and Development. Dr. Khan oversees the PepsiCo global Performance with Purpose sustainability initiatives, designed to enhance environmental, human and talent sustainability for the company, and he leads PepsiCo’s research and development (R&D) efforts, creating breakthrough innovations in food, beverages and nutrition—as well as delivery, packaging and production technology—to capture competitive advantage and drive PepsiCo’s businesses forward.