Frito-Lay Adds Gluten-Free New Products To Cash In On Trend

by Trefis Team
-4.19%
Downside
174
Market
167
Trefis
PEP
PepsiCo
Rate   |   votes   |   Share

PepsiCo (NYSE:PEP) has decided to add gluten-free to tap in on the  fad among American food and beverage companies as the market for gluten-free products has witnessed a huge increase in recent years. Even Domino’s Pizza Inc (NYSE:DPZ) unveiled its new range of gluten-free pizzas recently. [1] Frito-Lay is the biggest snack company in the world and constitutes more than 35% to PepsiCo’s stock price as per our estimates.

We maintain a price estimate of $69, which is in line with the current market price.

See our complete analysis of PepsiCo

However, There is a Catch

There is nothing that Frito-Lay is doing to change the composition of its products to make them gluten free. Only the products that contain less than 20 parts per million (which is the upper limit set by FDA) will be validated as ‘gluten-free’ and consequently labeled on the packages. Moreover, the products will only be suitable for consumers who are mildly allergic to gluten. For Americans who suffer from celiac disease, the products are still unsuitable. So, the packaging will not have any impact in terms of an increase in customer base.

Celiac disease is a digestive disorder that is caused by an allergy to gluten, a certain type of protein contained in common cereal grains wheat, barley, rye etc. It is a disease that affects nearly 2 million Americans. According to Packaged Facts, a market research firm, the market for gluten free food and beverage in the U.S. has grown from $216 million in 2001 to $2.64 billion in 2011. [2]

Labeling their brands as gluten-free is more of a marketing ploy by Frito-Lay than anything else. If anything, the move will increase the convenience of consumers allergic to gluten while shopping. The company would be much better off launching new, innovative products that meet the taste and the diet requirements of its customers worldwide.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. Dough! Domino’s Makes Gluten-Free Crust, But it’s Not Safe for Celiacs, opposingviews.com, May 24, 2012 []
  2. Frito-Lay Jumps Into Gluten-Free Craze With New Labels, abcnews.com, May 24, 2012 []
Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
PepsiCo Logo
  • commented 10 years ago
  • tags: KO KFT PEP
  • As a physician and the father of a daughter with Celiac Disease, Frito and Pepsi better be damned sure they mark these packages correctly, which is that they are NOT for those with Celiac Disease. My daughter, and thousands like her, suffer from the extreme sensitivity form. Even one part per million could put her in the ER in extreme pain and agony.
    I haven't seen the national Celiac groups making any comments about this yet, which surprises and concerns me.
    I am also angered by the comment in the article that this is a "fad". I'm not one to wish harm on anybody, but I'd like the writer to experience just for one moment the convulsive agony that people with this malady suffer through.
    PepsiCo Logo
  • commented 10 years ago
  • tags: KO KFT PEP
  • If the products are under the 20 parts per million and that is the standard that the government is passing as 'gluten free' it wouldn't be a ploy or a way for Fritos to 'cash in' because they are just labeling their products as the federal gluten free standards require. Maybe your beef should be with what the federal government is requiring, not Frito's. is 20 ppm enough? The three organizations that do gluten free certifications in US currently say it it gluten free at 10 parts and 5 parts. 20 parts is up to 4 times more. Something to think about.