PepsiCo Adapts to the Changing Food and Beverage Landscape

As the mother of two, Kristen Adams has a very discerning eye when it comes to the food she purchases for her family. Like many of today's consumers, she wants to be informed. She wants to know where food comes from and how it is produced. She wants more information on ingredients.

"From a consumer's standpoint, it's impossible to tell the method for how our food was grown, processed, and distributed before it reaches the point of sale where we casually put it in our shopping carts," says Adams, who lives in Wisconsin.

For decades, consumers like Adams were satisfied with tasty, affordable food. Today, they are demanding more from the vast network of stakeholders in the value chain.

One of those stakeholders is PepsiCo. Spending $2.2 billion annually on agriculture, the company is committed to satisfying the modern consumer's needs, anticipating their future sustainability, nutrition, and innovation expectations.

"Consumers today increasingly see their spending decisions as a way to make a difference," says Dr. Mehmood Khan, vice chairman and chief scientific officer for PepsiCo. "They want to see their values reflected in the products they purchase. What that means is we have to change our ways, not change the consumer to our ways."

Successful Farming had the opportunity to talk with Dr. Khan. He shares how the company is adapting to a food and beverage landscape that seems to be in a permanent state of disruption.

SF: Talk about the trends PepsiCo has seen through the years when it comes to the changing demands of the consumer.

MK: Let's go back to the mid-twentieth century, from the late '50s and '60s onward, when large-scale food was available across the country, and then across Europe.

You had big, iconic brands that grew rapidly. They were aspirational, and in some categories, they dominated. The industry essentially defined what was the content in the store. What crops were needed to be sourced to convert to these products were readily available. They were limited to a very small number of crops like corn and wheat, and in some cases, rice, potatoes, and oats.

These crops were also relatively inexpensive to scale. They were tasty, affordable, and most importantly – convenient. Consumers were very happy with what they were being offered.

We also shouldn't forget that up to that point, the world food supply wasn't reliable or even necessarily consistently safe. The No. 1 reason people went to see a doctor in the early 20th century was for a food- or water-related disease.

In the last 20 or so years, consumers have been asking a lot more questions and demanding a lot more. They want more nutrition. They want fewer empty calories. They want better ingredients. They want clean labels, which basically translates to the fewer ingredients the better, and they want ingredients they can recognize.

A good example of that is the GMO debate. Consumers are saying they don't want GMOs in the products they buy. It's become such an issue that even ingredients that are inherently never GMO have started labeling themselves as non-GMO.

Along with transparency in the supply chain, consumers want to know what the environmental impact is and how water is affected. They are also concerned about the labor practices in producing those products.

It's a massive shift.

SF: How is PepsiCo working to satisfy those modern consumer needs?

MK: In 2006, we introduced our Performance with Purpose vision. We are focused on substantially increasing our efforts to improve the products we sell, to protect the planet, and to empower people around the world in order to contribute solutions to the challenges we all share.

We were the first large-scale company to make broad commitments not just in one pillar like environment, packaging, or water but across all three globally. Since then, many in the industry have followed our lead.

As part of that vision, we are transforming many of the products we make to improve their nutrition profile. We're cutting the salt. We're cutting the sugar. We're eliminating transfat and reducing saturated fat.

Along the way, we've learned there are things we can do better. For example, we're not only going to reduce sugar, saturated fat, and salt in our products, we're actually going to increase the amount of nutrition and the number of nutritious offerings. We're also going to go after populations that are more challenged economically and increase the number of servings we provide to humans in parts of society that are underserved.

On the environmental side, we are reducing our water use and have made some very aggressive commitments to achieve that goal. We expect our water reduction footprint and carbon footprint to not only apply to the factories and processing plants where we produce our products, but all the way back to the farm. It's going to impact the entire supply chain.

About 80% of the planet's freshwater is used in production and agricultural products. Less than 10% of that footprint lives in our factory.

While 90% of that is outside of our direct control, from the farm level all the way up the value chain, we weren't willing to accept that. We wanted to work with our farming partners to help facilitate change. We said where we need to teach them, we will teach them. Where we need to set the standards, we will do that.

As we did this, it changed our relationship with farmers. It was no longer just a customer-supplier relationship. We were truly working together.

If we do this right, what's good for the environment or our carbon footprint is actually, from a multigenerational perspective, also good for the farmer in times of conservation.

SF: How does PepsiCo's Sustainable Farming Program fit into the company's vision?

MK: In 2015, we launched the Sustainable Farming Program to create pilots to show that what is being done is actually feasible. It has allowed us to track the progress being made in areas like water use, labor practices, and fertilizer use. To date we have 33 countries that represent about 35,000 growers.

To put that into perspective, we have about a 10-million-acre footprint of all the farmers that supply in to us. We are tracking and mapping just under 1 million acres already. By 2025, our goal is 7 million acres.

This has many implications. Once you start tracking, you can start to see where the opportunities are. You can see best practices; you can help improve when needed. It's also a living ecosystem that you're studying, which means there's a huge potential for academic and intellectual work to study and look for better ways.

As an example, we did a pilot in the UK with potato farmers. In under five years of launching it, we achieved a 50% reduction in water use, and yield actually went up slightly.

Everything that was used to accomplish this is available today. It was a task in learning how to employ it and use information. We partnered with the University of Cambridge and a couple of English tech companies to analyze the data. It was a wonderful experience because it showed us the impact we can have if we are only able to use what is available today.

These are the types of pilots that give us confidence. These are proof of how much of a change we've had to go through to get ahead of this. I'm excited because I think this is just the start. The more we learn, the more we can have an impact.

Another initiative that brings a number of players to the table is the Midwest Row Crop Collaborative.

We've all heard about the dead zone in the Gulf of Mexico, which is an area about the size of New Jersey that is essentially dead. The only way to fix this is to drastically reduce the runoff from the upper Mississippi where farming practices are draining into the Mississippi. What that means is much better targeted applications, different drainage systems, etc.

We joined forces with companies like Monsanto, Cargill, Walmart, General Mills, Land O'Lakes, and Kellogg's as well as The World Wildlife Fund, The Environmental Defense Fund, and the Nature Conservancy to look at three pilot states – Illinois, Iowa, and Nebraska – to ask what we can do to improve water efficiency, while reducing the runoff and the detrimental effect downstream.

I think it's important to have players like that at the table because all of us are smarter than any one of us. If nothing else, they have access to the right audience, and they have credibility.

SF: Why is a platform like the Ag Innovation Showcase, and the technologies it highlights, important to the future of food?

MK: We cannot bring about change alone. It's going to take several players to improve efficiency and productivity; while at the same time ensuring we reduce agriculture's environmental impact.

By bringing together technologists, agriculturalists, academics, investors, and hopefully policy makers, we can start to ask questions and share ideas around what the next generation of biological technology for plant breeding could be, what the best practices for growing a crop are, how we create full-scale crops that are more nutritious, how we effectively disseminate that nutrition, and how we eliminate food waste.

We also need to think about how we can lower the cost of technology so that it's democratized and available to more farmers. You have large resource-intense systems that can afford these technologies, but the farmer who has 50, 100, or 200 acres can't afford it. It behooves us to try to figure out ways that these smaller farmers can take advantage of this technology because if it creates the haves and the have nots, we can never feed the world.

The Ag Innovation Showcase is a great forum to have these conversations, so we can address some of the challenges we face and explore the technologies that could help us overcome those challenges for the next generations.

SF: If you could speak to farmers about the changing demands on the food they produce, what would you say to them?

MK: There is no question there will be a growing demand for protein in the world.

We will have 2 billion more mouths to feed by 2050, which means demand will go up by 30% to 40% in the next 30 years. That's a 1% to 2% increase on an annual basis.

Right now, we do not have the answers on how we are going to accomplish that.

The services a farmer provides are going to be in greater and greater demand. The question is can we figure out a way to do it that will sustainably meet the demands of the next generation?

If we don't think that through, there will be nothing to pass on to the next generation. My strongest message is that we're in this together; let's figure out how to do this together.

As a scientist, I also want to say let's not allow the scaremongers to scare the consumer away from technology. The food and beverage industry learned that with GMO technology because we did not include the consumer. Industry talked down to them and the consumer left us.

I'm not supporting GMO or any other technology, but all too often scaremongers tend to demonize technology. That misinforms the consumer. As we move forward, we must bring the consumer along with us.

SF: What keeps you awake at night?

MK: Despite all of the negativity and misinformation in the news today, there are a lot of good things going on and we are making progress – and it's being done with an ecosystem of partners. I think that gets lost when you politicize things. It's easier to scare people. It's a lot tougher to talk about the positive solutions that are out there and being worked on.

As we go forward, I hope we don't let our differences get in the way of continuing to make progress. Instead of pointing fingers and criticizing practices, let's come together.

The question is do we have the will, the power, and the wisdom to accomplish that? I believe we do.