If you can’t avoid the change – lead it. PepsiCo is betting on the wisdom of crowds to build a future of food industry.
In a search for new products and global trends in food and beverages industry PepsiCo is turning to open innovation
In the modern era of rapid technological development and countless innovative startups it is becoming inefficient for food and beverages companies to continue developing new product the old way – having a team of marketers and scientists come up with a new product or flavor and then deliver it to the market using standard logistics and communication channels. It is way too easy now to miss a great idea or a demand for a new product and, as a result, have the competitors benefit from this. Therefore, using the open approach to developing new products allows the companies to both capture consumer preferences and identify new opportunities that the in-house R&D team would have otherwise missed. Moreover, launching new products on the market is way more than just about incremental revenue for food and beverages companies, it is about securing the future existence of the company itself. The trends in food consumption are shifting permanently and dozens of start-ups arise each year aiming to take the crown from the current CPG industry leaders.
The vision of the food and beverages industry future has been one of the key priorities for PepsiCo over the last years. This has resulted in numerous programs which can be grouped in two large groups: one is enhancing current product lines by adding new flavors or changing the way top brands are produced and the other is investing in new trends that may be fundamental for the company’s performance for the years to come.
Crowdsourcing ideas for the enhancement of existing products and remodeling the way they are produced looks both in and outside the company. One of the most well-known examples could be a “Do us a flavor” program in UK [1] which has both increased the interest in the company and its products among millennials and drove sales up by 8% simply by asking customers to submit their potato chips flavor ideas and launching the winning one on the market. Ever since then this approach has become a habit for the company and resulted in multiple successful launches such as Pepsi Wild Cherry with zero sugar and Lipton Sea Buckthorn in Russia which were not only popular among consumers who were showing the request for these flavors, but incremental to the beverages category in general, securing PepsiCo’s market share in the category for a year or two. PepsiCo also understands well that not only the consumers, but the company employees should be incentivized to innovate and share ideas that could move the business forwards, so the company focuses on both acquiring outside talent through such open completions as “Go Trendsetter” [2] and internal “Next Big Idea” challenges. The ideas presented at these forums vary from launching mixable chips flavor sachets to introducing compostable plastic to the bottles, from turning bag of chips into a T-shirt to offering a cryptocurrency as an addition to the product for the consumers.
While the abovementioned innovations are aimed at keeping consumers engaged today and maintaining the current market share, the search for the products of tomorrow is focused on success for years to come. Such programs as “Nutrition Greenhouse” [3] [4] are targeted at innovative small companies that are trying to reinvent the food and beverages industry using the global shift towards healthier nutrition. And it is efficient – investing as little as $ 20,000 in ten companies is not significant for such a giant PepsiCo is, but if the project succeeds it will be easier to acquire the company given the established relationships and deep knowledge of the business that PepsiCo has developed throughout the program. Next step to test future success strategies is to grow the acquired small brands and Pepsi is also doing this by launching “The Hive” [5] an initiative with a purpose of turning smaller brands – Maker Oats, Stubborn Soda, Loosa – into American-wide ones.
Pondering the next steps in a search for new products and greater trends in the food and beverages industry PepsiCo could possibly turn to machine learning and trying to predict consumer preferences. Currently the company is in a beneficial position for that as they have a huge amount of granular representative data from all around the world and enough available funds to invest in such research.
As of today, PepsiCo has made a significant progress in the way they innovate and leverage the wisdom of crowds, but in a rapidly changing and developing food and beverages industry of today how can they make sure that they are not missing the next big thing that may bring them down?
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- Graham Buchanan “5 Examples of Companies Innovating with Crowdsourcing.” Innocentive, Jan 11 2018 https://blog.innocentive.com/2013/10/18/5-examples-of-companies-innovating-with-crowdsourcing
- James Thickett “PepsiCo Go Trendsetter Challenge” HrReview, June 12 2017 http://www.hrreview.co.uk/hr-news/strategy-news/james-thickett-pepsico-go-trendsetter-challenge/104804
- “10 Food and Beverage Startups That PepsiCo Sees as the Next Big Thing” Entrepreneur, Nov 12 2018 https://www.entrepreneur.com/article/323019
- Janet Forgrieve “Plants Power New Products In PepsiCo’s Accelerator Program.” Forbes, Sep 11 2018 https://www.forbes.com/sites/janetforgrieve/2018/09/11/plants-power-new-products-in-pepsicos-accelerator-program/#29f015431233
- Brett Dworski “New PepsiCo Platform to Develop Emerging Brands.” CSP Daily News, Aug 22 2018 https://www.cspdailynews.com/snacks-candy/new-pepsico-platform-develop-emerging-brands
A well-written and interesting piece. Would appreciate hearing the author’s perspective on a two questions listed below:
1. The wisdom in leveraging crowdsourcing to elicit the preferences of the crowd seems apparent. However, I wonder how Pepsi selects among the most “popular” ideas put forward. For instance, choosing the idea with the most votes may be problematic if the population participating in these initiatives is not representative of all consumers, limited in size, or both. Does the author have an insight as to how Pepsi protects against the downside risk of extrapolating on crowdsourced ideas such potentially risky situations?
2. The author argues that the initial investment in start-ups focused on potential products of tomorrow is quite low. However, subsequent investment decisions in the product development lifecycle may be more complicated and costly. Does the author have any insight as to how Pepsi would evaluate such decisions (e.g., through a stage-gating approach as performed by pharmaceutical companies)?
The article is very compelling. Food trends are changing at a radical pace. The world is demanding food that is healthier, more natural and produced in an environmentally friendly manner. I think that Pepsico is correctly understanding that open innovation is essential to constantly create new products that adapt to the new requirements.
I would like to point two challenges that I think the company has to address. First, food trends vary per country. Some countries may be demanding more organic products, while others may be more interested in getting cheaper food. Therefore, I think that Pepsico has to account for country differences and create open innovation initiatives in different places. Secondly, the article mentions that Pepsico invests in new trends that may be essential for the company’s future performance. It seems that the company needs to bet on multiple startups to avoid missing the next future trend. However, the question is when, and up to what extent, Pepsico will get involved in successful ventures. If a startup grows and becomes a big business, will Pepsico get more involved in the management to integrate that business into their business model? Or will it be a passive investor that let entrepreneurs be independent and keep disrupting the food business? This type of open innovation will eventually create management challenges that the company will need to address.
To sum up, I enjoyed reading about this topic and I think you made a very good job explaining the importance of open innovation for the food industry.
Thank you for this insightful piece. It is interesting to read how PepsiCo is taking on the challenge that the world’s food and beverage tastes are shifting at such a fast pace. By crowd-sourcing their flavors, I wonder how much internal screening effort these ideas would need to go through to offer the new flavor to their customers. Even so, how translatable would a flavor be from one region/country? One potential solution is to have a localized flavor, but this could risk an huge inflation in product offering globally – would they then lose their benefits of scale? Perhaps localized tastes would be best to be left to smaller companies to take up and capitalize on.
I thought that crowdsourcing ideas for expanding the product portfolio is pretty smart. In a matter of fact it fulfills two tasks – idea generation and market research. You can consider a product recommended by and voted for by a huge number of people to automatically appeal to that group of people and convert them into actual consumers. The question here is would people put their money where their word is. People might find an idea interesting and vote for it, despite being reluctant to consume that actual product in case it materializes. Another risk would be that a crowdsourced product might become a victim of a hype wave. Consumers might lose interest quickly and in this case all the funds spent on launching a product to the market would become a loss. I think that the most effective approach would be to use some combination of crowdsourcing and traditional research and development to maximize the potential for market traction and financial success of a new product.
Very interesting article. One of the things that struck me about this piece was the author’s mention of both crowdsourcing related to flavor ideas as well as smaller organizations / start-ups. In this sense, the author tries to demonstrate that PepsiCo is leveraging the concept of open innovation broadly — it draws upon ideas both from individuals (e.g., customers, employees) as well as consumer packaged goods products that are already on the market.
One question I would ask is whether PepsiCo’s investment in smaller companies (as was the case in its “Nutrition Greenhouse” program) can truly be considered an example of open innovation. The practice of buying/investing in smaller company has been a common practice for decades, and it is by no means limited to PepsiCo (or the consumer packaged goods industry — think of pharmaceutical companies purchasing biotech firms). While this practice does give PepsiCo a stake in new products, I believe that it is different from its consumer and employee crowdsourcing campaigns. Rather than soliciting ideas from a broad population, PepsiCo is evaluating existing ideas and assessing their brand potential. Can this truly be considered open innovation?
Great article in an industry that I do not have much experience in. Thank you for sharing.
Internal and small innovative company competitions such as “Go Trendsetter” and internal “Next Big Idea” sound excellent for attracting talent and getting exposure to new ideas. Other ideas for Pepsi is to tap into colleges and universities. The hackathon culture is growing, where many students and even employees get together for a weekend to quickly build and prototype different products. I think Pepsi can leverage that culture and start hosting competitions, as well as possibly incubating some start ups in their offices as a form of ‘shared innovation.’
Really interesting to read! I think this is a brilliant move by Pepsi – millennials love to have input on things they consume and interact with, so product launches like these tie the consumer to the brand and, I would think, drive brand loyalty. Your idea around machine learning is really interesting – if people could vote based on flavors that a machine learning algorithm can produce, I think that would be the optimal combination.