PepsiCo Listens to Consumer Demand for Healthy Options
PepsiCo exits the US yogurt market
PepsiCo (PEP) and Germany-based dairy giant Theo Muller Group have ended their yogurt production at a western New York plant. According to a news release by the Associated Press, the plant has been sold to Dairy Farmers of America, which is a national milk marketing cooperative.
Of the 170 jobs in the dairy plant, 64 will be cut and offered transition assistance, while the others are expected to be retained by the Dairy Farmers of America.
Through their joint venture Muller Quaker Dairy, PepsiCo and Theo Muller Group opened the yogurt manufacturing facility in Batavia, New York, in June 2013.
Reasons behind the closure
According to a statement by PepsiCo mentioned in AdAge, the mutual decision to exit the US yogurt business came as sales were below expectations in a competitive and dynamic environment. PepsiCo’s yogurt business competed with Chobani, General Mills (GIS), ConAgra Foods (CAG), Nestlé (NSRGY), and Danone (DANOY).
Demand for dairy products
According to data provided by the Economic Research Service of the U.S. Department of Agriculture, per capita consumption of all dairy products rose from 590 pounds in 2000 to 614 pounds on a milk fat equivalent basis in 2014.
The per capita consumption of yogurt in the US rose from 6.5 pounds in 2000 to 14.9 pounds in 2014. However, the per capita consumption of yogurt fell slightly from 14.93 pounds in 2013.
PepsiCo’s rival Coca-Cola (KO) is expanding its presence in the dairy business. Together, Coca-Cola and PepsiCo account for 3.0% of the iShares Russell 1000 Growth ETF (IWF) and 14.8% of the iShares U.S. Consumer Goods ETF (IYK).
Leão Alimentos e Bebidas, in which Coca-Cola has a 50% stake according to FoodBev and Just Drinks, reached an agreement in December 2015 to acquire dairy company Laticínios Verde Campo. The acquisition will enable Coca-Cola to provide greater beverage choices for consumers. It will also give the company a foothold in the cheese and yogurt product categories. The terms of the acquisition were not disclosed. FoodBev reported the news on December 9, 2015.
In early 2015, Coca-Cola announced the nationwide launch of its premium milk product FairLife, marking a move toward diversification of its beverage portfolio and more nutritional options.
Beverage giants are looking for various growth options beyond their traditional soda businesses through internally developed products and strategic acquisitions. In 2015, Coca-Cola purchased a stake in Monster Beverage (MNST) to indirectly leverage its growth opportunities in energy drinks. Coca-Cola also bought a ~30% stake in Suja Juice, a California-based manufacturer of organic juices.