The Wall Street Journal published an article yesterday entitled, “PepsiCo Wants to Sell Healthy Food, Consumers Want Chips.” In it, reporter Mike Esterl describes the dilemma that PepsiCo‘s CEO Indra Nooyi has been wading through for the last decade since she took the chief executive role: growing a business of nutritious foods while not cannibalizing its empire of sugar and salt rich foods.
When Nooyi came into her new role as CEO in 2006, she focused on capitalizing on the growing market and consumer desire for healthy snacks. But, after having to cut her profit outlook twice in 2011, PepsiCo refocused on its core business of “indulgent products”. The markets have supported this decision, as you can see from the below chart showing PepsiCo’s share price growth.
In 2010, PepsiCo set a goal of tripling revenue from nutritious products to $30 billion this decade, but given its need to refocus on indulgent snacks, PepsiCo has had to adjust this goal. The new goal is to have sales growth of its nutritious products outpace the rest of its portfolio by 2025.
It shouldn’t be a surprise that visions to change the world and consumer behavior take time. A long time. Decades even. And, for a company like PepsiCo that generates over $60 billion in revenue globally, driving positive change (helping consumers eat healthier) while not cannibalizing its core business of indulgent snacks is a tough balancing act.
Perhaps the example that I think of most is Elon Musk and his companies, Tesla, SolarCity and SpaceX. All of them have big audacious goals – somewhat related and intertwined. In their own way, they’re each pushing towards better energy efficiency and to reduce our dependencies on fossil fuels. And, what Musk’s companies have faced is not unlike what PepsiCo has faced. Consumers say they want to be green, but the mass market of consumers is not actually willing to sacrifice their indulgences in order to be green. Consumers may say they want healthier foods and snacks, but the mass market of consumers are not actually willing to sacrifice their indulgences in salty, sweet goods in order to be healthier.
Musk recognized this in the energy sector and developed a long-term plan to evolve consumer behavior. With Tesla, he started out with a limited edition $100,000+ sports car and targeted wealthy, influential consumers as his customer. This created a luxury brand that consumers aspired to. Since then, he’s been moving down market to provide the same remarkable experience (beautiful car design, driving experience and ever-improving software) at a more affordable price. The main selling point isn’t that Tesla is an electric vehicle. It’s that Tesla provides a remarkable driving experience – and the cars happen to be better for the environment.
Similarly with SolarCity, recently Musk revealed three new styles of solar panels that are designed to replace your roof tiles (see video below). Not only are they beautifully designed, but they’re stronger and more durable than the roof tiles you have on your house today.
Musk recognizes that while consumers say they want to be green, the mass market won’t be willing to sacrifice the aesthetic of their house to be so. So, he’s bringing a solution to market that meets both the aesthetic needs of the consumer and the social desire to be green.
Over time, Musk and his companies will help meet a long-term vision of a self-sustaining house that is off the grid. Your solar panel roof will provide you all the energy that you need, including charging that Tesla you have in your garage. So, you’re fossil fuel consumption goes to near zero.
So, as I think about PepsiCo and Nooyi’s challenge of meeting consumers’ desire for indulgent snacks today, while pursuing a vision of helping consumers be healthier in the future, I think about those incremental steps that Musk has taken over the last decade across his companies to bring his vision to life – a vision that won’t become fully realized for at least another decade. Nooyi started out on her journey around the same time as Musk. She’s a decade in. What can she do to realize that vision in the next decade or more?
Reciprocity Theory 