Wasabi Ginger Potato Chips- Betcha Can’t Have Just One?
You could be the inventor of Lay's next chip flavor as Pepsi turns to consumers for innovation.
The supermarket potato chip aisle, once dominated by Lays, has recently been infiltrated by an army of small start-up brands. Pink Himalayan Salt Rice and Quinoa Chips from Lundberg Farms. Hemp Tortilla Chips from Food Should Taste Good. The list goes on and on. While Lays, a division of PepsiCo, still has majority share in the chip category, it has been steadily losing sales to innovative startups just like these.
Across its entire portfolio, Pepsi has been facing the threat of smaller players. In 2017, large consumer brands (such as Pepsi) grew at a meager 0.2%, versus 2.3% for small brands, a trend that has been consistent over the past several years [1]. Pepsi must innovate to compete against these powerful startups. Historically, Pepsi has used internal R&D as its primary innovation source. However, the internal R&D process has contributed to the company’s current challenges; with numerous corporate controls and governance roadblocks, Pepsi has struggled to agilely innovate to compete with smaller, more nimble brands. Therefore, one newer strategy it has employed is acquisition; for example, in 2016 Pepsi purchased KeVita, a startup that has been a leader in the trendy Kombucha category [2]. While growth through acquisition is a common, and popular, tool, it is not sustainable given the financing required. Therefore, what can Pepsi do to stay competitive in innovation?
One answer is open innovation. Pepsi has successfully leveraged open innovation by reaching out to consumers for flavor ideas in the short term and scientific breakthroughs in the medium term.
The best examples of these short-term efforts are Cheesy Garlic Bread chips and Wasabi Ginger potato chips, both flavors created through Lay’s “Do Us a Flavor” contest. Starting in 2012, and occurring every 1-2 years, Lays has turned to consumers to create the next great chip flavor. In this contest, consumers propose new potato chip flavors, and then vote online for their favorite. Lays then develops and launches the top flavor in stores across the U.S., awarding its creator a cash prize of $1 million [3]. This crowdsourcing initiative is a cost-effective way to guarantee that innovation is grounded in consumer research; consumers not only create the flavor, but also vote on their favorite, all but ensuring consumer demand.
Looking towards a longer, 2-5 year horizon, Pepsi is working to crowdsource new ingredients and technologies. Food technology startups like Exo (cricket protein bars) are some of the biggest threats to Pepsi. To compete, Pepsi has partnered with open innovation platform NineSights to pose R&D challenges to the public [4]. For example, they recently challenged consumers to suggest a novel source of protein. The posted challenge explains specifications of the request (e.g., no soy or pea protein), and potential prizes that range from a job with Pepsi to financial rewards [5]. More sophisticated crowdsourcing efforts like this can help Pepsi develop ingredients that can drive longer-term success.
Going forward, there is still a lot that management can do to capture the power of open innovation. First, Pepsi should expand its crowdsourcing efforts to other brands. Given the proven playbook developed with Lays chips, Pepsi can host flavor-based crowdsourcing competitions with some of its other struggling brands (e.g., Quaker). Additionally, Pepsi should expand its open innovation from the consumer level to the company level. As mentioned before, acquisition has been one of Pepsi’s key strategies to stay competitive. However, a cheaper alternative is to forge partnerships with emerging brands. A partnership with a startup can improve Pepsi’s relevance with consumers and generate incremental revenue. And for a smaller brand, a partnership with Pepsi can provide the distribution and exposure needed to grow. Tactically, Pepsi could host an annual contest where start-ups compete to be Pepsi’s featured partner. Implementing a program like this can ensure that Pepsi has a regular pipeline of innovative ideas, all of which are created outside of the company.
While open innovation is a highly attractive path for Pepsi, some open questions remain. First, what impact will the success of open innovation have on internal Pepsi R&D? There is a risk that Pepsi R&D may become complacent if they feel as though they are being replaced by crowdsourcing. Second, how can Pepsi effectively partner with startups without hurting the startup’s brand image? There is a great opportunity for crowdsourced partnerships, but Pepsi needs to determine how to integrate the startup without tarnishing its authenticity. Despite these open questions, it is clear that crowdsourcing will remain an important growth lever for Pepsi in the future.
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[1]Peri Edelstein, “What the Fastest Growing CPG Companies Do Differently,” The Boston Consulting Group, June 18, 2018, https://www.bcg.com/en-us/publications/2018/what-fastest-growing-consumer-packaged-goods-companies-do-differently.aspx, accessed November 2018
[2] “PepsiCo Announces Definitive Agreement to Acquire KeVita, a Leader in Fermented Probiotic Beverages,” press release, January 20, 2015, on PepsiCo website, http://www.pepsico.com/live/pressrelease/pepsico-announces-definitive-agreement-to-acquire-kevita-a-leader-in-fermented-p11222016, accessed November 2018
[3] “Lay’s “Do Us A Flavor” Contest Returns To The U.S. With $1 Million Grand Prize For Best Potato Chip Flavor Idea,” press release, January 20, 2015, on PepsiCo website, http://www.pepsico.com/live/pressrelease/lays-do-us-a-flavor-contest-returns-to-the-us-with-1-million-grand-prize-for-bes01202015, accessed November 2018
[4] Nine Sigma, “Success Stories,” https://www.ninesigma.com/success-stories, accessed November 2018
[5] Elaine Watson, “PepsiCo seeks novel protein sources with ‘easy to pronounce’ names and ‘a good sustainability story’”, May 4 2017, https://www.foodnavigator-usa.com/Article/2017/05/05/PepsiCo-seeks-new-and-novel-protein-sources#, accessed November 2018
Fascinating piece! I thought it is particularly interesting how crowdsourcing innovation guarantees that they are making something that consumers want by having them involved in both creating and voting on flavors. On your question around Pepsi R&D, I definitely see an opportunity to slowly move some of that spend from traditional R&D to crowdsourcing. However, I imagine that R&D will continue to play a key role in some of the things you mentioned such as identifying new ingredients and technologies, and so perhaps the right thing to do over time would be to change the scope of R&D?
Interesting article! I enjoyed your examination of the trade-offs between crowd sourcing and R&D. While cloud sourcing provides many consumer insight benefits, I think that R&D is a necessary staple of the company. More importantly I think R&D stands to benefit from crowd sourcing. These scientists can use and expand on the ideas that come through resulting in a better product.
Great article! It is refreshing to read about the implementation of open innovation outside the realm of pure “technology”.
Innovation is innovation, whether implemented through billion dollar investments or through fast and cheap ideas (although innivation that leads to cricket protein bars should probably be terminated).
I think the question of R&D complacency with the prevalence of crowd-sourced innovation is very valid, and once that should be discussed even further as it is applicable across multiple sectors.
Great read! I would have loved to sample the cheesy garlic bread variant, although am not sure about cappuccino crisps. Overall, I think crowdsourcing in the food and beverage sector is a fantastic idea as long as the product development cycle is lean and quick enough to adapt to constantly changing fashion trends. For example, Lotus biscuits became a hit product in the middle east and everything lotus based was being purchased fanatically. However, that trend only lasted a short while after which the craze faded away. My only concern is can Pepsi react quickly enough to emerging trends such that it is able to get a crowdsourced idea to shelves in time. I really appreciate your recommendation for Pepsi to seek breadth across its product line to transfer crowdsourcing in other areas. And since crowdsourcing is exclusively opt-in, what more could Pepsi do to incentivize innovative ideas to gravitate towards unpopular brands (e.g. Quaker)?
Interesting read. I would love to sample the garlic cheese variant but am not too sure about cappuccino crisps. I love the idea of crowdsourcing in the food and beverage industry, particularly since tastes and trends vary geographically. My only concern on the issue is the speed by which Pepsi could get products out to the shelves. In a constantly shifting landscape of products, packaging, and tastes, it seems to me that the product development cycle is the real limitation. Also, I appreciate your recommendations on breadth and the fact that Pepsi should seek cross-applications to less successful product lines. I however wonder how Pepsi could incentivize creative ideas to surface to dated brands (e.g. Quaker) given that crowdsourcing is an opt-in process.
Crowd-sourcing innovation is a really interesting concept here; one thing that I think companies have to keep in mind is the selection bias of the people who are interacting with the company. Putting out a “contest” for chip flavors is a cool idea; however, the people who are spending time to respond to this challenge are not necessarily representative of the target customer that Pepsi is going after. For example, maybe this is only attracting customers who are already super loyal, while Pepsi is trying to broaden its customer base. In this case, offering a niche product might be completely ineffective in broadening its market.
Interesting read! And it made me hungry at almost 1am. In Asia, there are lots of exotic Lays chips flavors, for example, cucumber, which I heard is massively popular but have not tried. I would be very interested in learning about how much these contests will involve the open innovation sources after the idea generation. Are they part of the R&D, marketing and feedback loop, or are the contests more of a marketing tool? How do the internal R&D make decisions in terms of screening and selecting these innovative flavors? How long do these flavors last?
Interesting article. I think open innovation makes a lot of sense for a large-scale consumer goods company like Pepsi. I’m curious how they can keep control of the narrative (i.e. avoid a “Boaty McBoatface” scenario) when the people voting on ideas don’t have any skin in the game for the actual product. The incentives seem more aligned in R&D, though as one other comment mentioned, I think Pepsi will need to retain their own competencies in R&D. In either case, crowdsourcing offers a low-cost method of product development with a potentially high reward.
Interesting piece. Wonder what Lay’s R&D department thinks about consumers now doing their job for them! Also, given our discussion on Boston Beer today I wonder what the supply chain ramifications will be on having many more, niche SKUs. I would imagine that Lay’s distribution model is much more straightforward than Boston Beer’s, but still think that there may be some additional overhead burden involved with this product strategy.
Interesting post! I think crowdsourcing is a great example of how Pepsi has taken strides to stay relevant in a landscape of changing consumer preferences. With regard to R&D complacency, I actually think there is potential for the “competition” posed by open innovation to push internal R&D teams to be even more innovative and to take greater risks. There’s also huge upside if Pepsi can find ways to foster collaboration between internal R&D and the consumers who are providing innovative ideas, and I think an interesting avenue for them to explore is how to leverage its vast capabilities to push these crowdsourced ideas even further. One potential idea is a incubator of sorts.
Great use of crowd sourcing to make a Pepsi relevant for consumers! I have a few questions for you and/or Pepsi to consider:
1. How will Pepsi manage SKU proliferation with these consumer driven innovation? Shelf space at retailers is often limited, so in order to get new flavors into stores, another SKU may be cannibalized; is Pepsi willing to make that financial trade off for an untested flavor (consumers voting online may not necessarily translate into sales)?
2. From my understanding of this category, much of the move towards smaller brands is driven by consumers seeking healthier options (i.e. baked, veggie chips, etc.) and locally made brand options. This crowd sourced solution does not necessarily address either of these major drivers of share loss. Do you really think this addresses the issue the company is facing?
3. Having worked at a company similar to Pepsi, often times the issue at major CPG companies is not a lack of ideas, but rather an inability to act on those ideas quickly enough or the unwillingness to disrupt current processes for an idea that has significant uncertainty around results and to displace another SKU who’s sales will be lost. Will crowd sourcing really address the true challenges for growth the company is facing? Would the company or it’s employees never think of the flavors suggested in the competition? Is the crowd sourcing worth simply for the consumer engagement of loyal consumers (i.e. not for the idea itself, but rather only for the “consumer research”)?
Thanks for this interesting post. Reading through your post, I wondered whether the crowd sourcing contests were mere marketing gimmicks rather than sustainable sources of revenue and/or growth. For example, are the Cheesy Garlic Bread chips and Wasabi Ginger potato chips still available widely today? Or were they short-term limited releases that satisfied only their most loyal customers who participated in the competition and voting? I also worry about this incremental (vs. radical) nature of their innovation. Is Pepsi missing the better-for-you health consciousness trend by focusing efforts on tweaks (i.e., flavors) to its existing brands? Perhaps the proposed partnerships with startups would overcome this!