Muller Quaker Dairy, a joint venture (JV) between PepsiCo (NYSE:PEP) and Theo Muller Group of Germany, recently announced the opening of a new manufacturing facility in Batavia, New York. PepsiCo entered into this JV with the largest privately held dairy business in Germany last year. ((PepsiCo-Muller Joint Venture Yogurt Plant Opens, www.foodprocessing.com)) With this new facility, the companies aim to expand the distribution of their Muller yogurt servings from select regional markets to cover nationwide stores, thereby increasing their share in one of the fastest growing categories in the U.S. food and beverage industry. However, we believe that PepsiCo might have to invest some extra dollars into the marketing of these products in order to drive store activations that can significantly alter the current market composition.
More Weight On Healthier Portfolio
Its good for you (GFY) products portfolio contributed more than 20% to PepsiCo’s $66 billion revenues in 2012. The portfolio includes popular brands such as Quaker, Tropicana and Aquafina that are leading the company’s march into this category. Food and beverage products that belong to this category are focused on delivering positive nutritional value through healthy ingredients such as whole grains, fruits, vegetables and low-fat dairy products while moderating the amount of saturated fat, sodium and sugar. Increasing consumer demand for such products, especially in the developed markets, is driving PepsiCo to increase their weightage on this portfolio. The company aims to generate 30% of its revenues from these products by 2021. 
The market for yogurt in the U.S. is worth $7 billion and has grown at more than 8% CAGR over the last five years.  When announcing its JV last year, PepsiCo pointed at the high growth potential of the value added dairy products category in the U.S. by noting that the consumption of these products in the U.S. is less than half of that in Europe. Euromonitor, a market research firm expects the category to grow at almost 6% CAGR over the next five years. 
PepsiCo and Muller are planning to leverage PepsiCo’s scale and strong distribution network in the U.S. food and beverage industry to tap this fast growing market. PepsiCo’s marketing strength and brand recognition that comes along with more than 22 billion-dollar brands will also help them ramp up market share quickly. Moreover, Muller’s vast experience in the European yogurt market will also help a great deal with insights into consumer preferences in this category. Although currently the companies are marketing just three brands in the U.S. dairy market, namely Muller Corner, Greek Corner and FrutUp, with the new manufacturing facility online we can expect to see some new product launches as well. 
PepsiCo plans to not to compete solely on the basis of price by selling its products as premium offerings. However, we believe that it will not be an easy task for the company without spending some extra dollars on marketing and advertisement of Muller’s yogurt brands that are relatively new to the U.S. market. It should also be noted that the U.S. market is already flooded with some 200 different yogurt brands, mostly from General Mills (NYSE:GIS), Danone and Chobani that are also the top three companies in the category by market share. ((ref:3))Notes: