Pepsi to Fuelosophize in Whole Foods

Discussion
Nov 13, 2006

By George Anderson


There are certain things that simply do not seem right together. You know, Britney and K-Fed; Al Franken and Rush Limbaugh; and a match such as Pepsi and Whole Foods.


But, wait a minute. It may be that at least one of the above does make sense. PepsiCo, it turns out, has been testing a line of healthy organic chips and cheese puffs under the Sun Snacks brand in Whole Foods stores. And now, the chain is following that up with a line of high-energy protein-drinks under the Fuelosophy brand.


Finding a way into Whole Foods is a big step for PepsiCo and the company is not alone as many other large CPG manufacturers are attempting to do the same.


“It used to be that the natural-foods channel was an afterthought in terms of distribution, but now it’s almost like … a beachhead for brands that are different and legitimately better products, even if the endgame is mainstream grocery,” Peter Murane, president of BrandJuice, told AdAge.com.


Steve Gundrum, president-CEO of product-development firm Mattson, said, “Every company I work with is designing products distinctively different than regular grocery products to appeal to the natural foods channel.”


One thing manufacturers used to working with mainstream grocers quickly learn is that Whole Foods is not the typical supermarket operator. Unlike many in the mainstream, Whole Foods is “not a reseller of branded package-goods,” said Mr. Gundrum. “They’re really a curator of brands and products that fit their consumers’ lifestyle.” If Whole Foods stocks it, then it must be good. It must also, following the line of logic, be worth the price being asked.


A major advantage for the giant CPG manufacturers in testing with Whole Foods is that it cuts out the thousands of dollars associated with paying slotting fees at mainstream grocers. If a product succeeds at Whole Foods, then distribution everywhere else is likely to follow.


While it may seem that stocking PepsiCo products such as Fuelosophy is at odds with the Whole Foods’ philosophy, it turns out the grocer is increasingly working with larger suppliers because many of the small brand marketers it started out with have been purchased by corporate heavyweights.


An unidentified source said Whole Foods stands to benefit from working with global food giants such as PepsiCo. “Whole Foods’ growth is going to come from the mainstreaming of their products, and if they can green up these big guys to fit their … criteria, they’ll have much bigger margins,” said the source.


Discussion Question: What do you see as the opportunities and possible pitfalls for Whole Foods and PepsiCo in their business dealings with one another?

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13 Comments on "Pepsi to Fuelosophize in Whole Foods"


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Charles P. Walsh
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Charles P. Walsh
15 years 6 months ago

It may be naïve to assume that Whole Foods Customers are such “purists” to the extent that if they were to see Pepsi Product in a Whole Foods store that they would stop shopping there.

In fact if this is true then one would have to acknowledge that Whole Foods growth is limited to that customer base and any expansion and comp store growth would be limited to this very specific customer demographic.

Whole Foods will need to continue to find ways to be relevant to its existing customer base while finding ways to attract new customers. This is little different for Pepsi whose product offering has moved away from strictly cola and into alternative drink markets and selling venues.

I applaud the approach and expect to see more of this morphing of product offering in the future.

Gene Hoffman
Guest
Gene Hoffman
15 years 6 months ago

I applaud what Pepsi and Whole Foods are trying to do. A new idea, when studied closely, merely reflects what a forward-thinking company does not know about what other companies have thought. It’s imaginative whether or it is practical. It’s a testing of the unknown – that’s where most progress lies – and if successful it will accrue dividends for Pepsi and Whole Foods. But will it carry over into retail environments, well, the jury is still out on that dimension of the idea.

Ryan Mathews
Guest
15 years 6 months ago

To Stephen’s point — I don’t think so. Sooner or later food will get “politicized” probably when the bills start rolling in for Boomer ailments. If that happens, food companies are going to have a hard time explaining why they thought it was okay to market products that were “unhealthy” but sold well. Pepsi is just trying to get ahead of the curve. Probably smart thinking for both the short and long runs.

Ryan Mathews
Guest
15 years 6 months ago

For Whole Foods, the danger is that its core customer will see the stocking of Pepsi products as co-option to the enemy. For Pepsi, (assuming the natives don’t get too restless), it opens a lot of new market possibilities — many of which may eventually shift over to traditional channels. It’s no secret that many packaged goods aren’t “good” for you — the question is, is there a consumer market large enough to support a mass line of truly healthy products?

Dr. Stephen Needel
Guest
15 years 6 months ago

Doesn’t this sound like the next “low-carb” fad?

Mark Lilien
Guest
15 years 6 months ago

Whole Foods’ stores require high margins because of their high service and real estate costs. PepsiCo and other conventional supermarket brand suppliers generally offer low margins to their retailers. The low margins are supplemented with slotting fees, co-op advertising allowances, volume rebates, deal allowances, etc., but the net margins are still relatively low. Unless PepsiCo and other would-be suppliers to Whole Foods provide superior margins, the relationships will not last.

Robert Leppan
Guest
Robert Leppan
15 years 6 months ago

I see lots of positives with CPG companies like Pepsi bringing test products to Whole Foods – initially for that chain exclusively but for broadscale expansion if the product meets some benchmark for success. Other retailers such as Trader Joe’s & Bristol Farms out here on the West Coast would be excellent alternatives to try out new product concepts that are natural, healthy and “green.” It’s a low cost, low down-side way to get a read on the feasibility of a new product – especially one that has appeal to the demo & lifestyle of Whole Foods customers, who are more likely to be “early adopters” than the shoppers at traditional grocery chains. Plus, a successful track record at Whole Foods is a great way to leverage sell-in down the road at mainline retailers. And if the new product is a disaster, marketers have more limited financial exposure and trade repercussions. Whole Foods just has to be very diligent to ensure new brands are not going to upset the trust they’ve built with their shoppers.

Bernice Hurst
Guest
15 years 6 months ago

Much of what happens next will depend on how hard the Pepsi brand is pushed. So many big companies have swallowed up smaller manufacturers that they think will give them boost onto what they perceive as a bandwagon that consumers often have no idea just who is producing the food that they are buying. Some may not care even if they do know but those who find out belatedly and think that they have, in some way, been misled, may not be happy. There probably aren’t enough purists who would walk away from Whole Foods on principle if they know that more mainstream manufacturers own the brands that they have come to buy to make a significant difference to turnover but honesty is still the best policy. If Pepsi and Whole Foods, or other partnerships, are to work to everyone’s satisfaction, they must be transparent from the get go.

John Corn
Guest
John Corn
15 years 6 months ago

Organic and “healthy” foods, in all categories, are exploding. One needs only look at Wal-Mart and Safeway leading the charge into that domain. Whole Foods’ dominance in this domain will shrink, or at least their margins, by far the highest in the grocery industry, will plummet. Their quality will help maintain some market share but their volume is history.

“Stakeholders,” as discussed in detail in a recent Reason article and forum, at least the shareholders, will quickly lose patience; they’re not invested for philanthropy.

Greg Coghill
Guest
Greg Coghill
15 years 6 months ago

I hope this trend is a boon for independent organic retailers that have been loosing customers to Whole Foods. But I assume any backlash by consumers against Whole Foods will result in a discontinuation of this and other similar relationships. Time will tell.

John Taylor
Guest
John Taylor
15 years 6 months ago

While joining forces with major suppliers makes perfect sense, Whole Foods should be very careful about the lack of store image sensitivity rampant at companies like Pepsi. They set the tone, not Whole Foods, and that often results in a bad fit. Awkward pop-culture branding from Pepsi, which is used to dealing with Brittany Spears fans — not selective Whole Foods shoppers — won’t work. ‘Fuelosophy’ sounds like it belongs in 7-Eleven, not Whole Foods. I can only imagine that the packaging graphics and displays supporting such a name will be totally out of place in Whole Foods.

Stephan Kouzomis
Guest
Stephan Kouzomis
15 years 6 months ago

Where have some of us been? This retailer and brand company practice has been going on for years. It is called test marketing to and in a specific channel of distribution and its shoppers.

And, it does work and very well, thank you.

If you haven’t noticed, Whole Foods and Wild Oats supermarkets’ growth is real, and not a fad. Nor are the products that are sold in these retailers’ outlets a fad–It is a means to market test or fine tune a specific brand line to a channel of distribution. And, it is very legal.

The parallel to the mentioned retailer/Brand corporation relationship is no more unusual or questionable than Wal-Mart’s relationships with a select group of organic manufacturers and marketers to establish a line in WM.

Hmmmmmmmmmmmmmm

John Lansdale
Guest
John Lansdale
15 years 6 months ago

Let’s face it. British Petroleum (BP) is now an “environmental” company. All the other oil companies are joining up. If the concept “whole food” is considered favorable, soon not only will we be having whole Pepsi but we’ll be drinking natural gin.

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