This article first appeared on GuruFocus.
PepsiCo Inc. (PEP, Financials) built one of the world's biggest food businesses around chips, soda and packaged snacks. Now it is looking harder at the other side of the grocery store.
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PepsiCo is expanding into refrigerated dips, produce-adjacent foods and ready-to-eat meals as consumers show more interest in fresh and less-processed options.
The opportunity is large. The so-called perimeter of the grocery store accounts for more than $271 billion in annual sales, according to Food Dive, and PepsiCo historically has had a relatively small presence there. That is starting to change.
The company recently launched Tostitos guacamole and has been building around brands such as Sabra and Siete. GLP-1 weight-loss drugs add another reason to move faster.
Consumers taking medicines such as Wegovy and Ozempic typically eat fewer calories and often shift spending away from salty snacks and sweets toward foods with more protein, fiber and nutritional value.
That creates an uncomfortable problem for companies built around snacking. PepsiCo is trying to get ahead of it. Fresh foods also give the company more eating occasions and access to parts of the grocery business growing faster than the traditional center aisles.
The strategy will take time. Refrigerated products come with different distribution, shelf-life and operational challenges than bags of chips.
But the direction is clear. PepsiCo does not want changing diets to simply shrink its snack business. It wants to follow consumers into whatever they eat next. The next test will be whether newer fresh-food products can become large enough to offset continued pressure on traditional snack volumes.