“Consumers are bombarded with information from media, bloggers, friends and family, from their yoga studios, wherever it is, and this knowledge, in particular for those who are more nutrition-forward, is influencing their beliefs, their choices in foods and beverages,” Daniel Grubbs, managing director for PepsiCo Ventures Group, explained at BevNet Live in New York City earlier this month.
However, he said, PepsiCo has learned from its initial investments in emerging brands as well as from its partnerships with investment companies that where consumers are in this “knowledge funnel” influences the “adoption curve” of functional products and how receptive consumers are to the health and wellness benefits they offer.
“Some things might not be fully adopted today, but we recognize that there are some triggers and components that can help with this adoption,” he said.
Develop loyalty by building understanding
One of these components is the extent to which consumers understand a product’s efficacy, and what type of messaging the company has in place to deepen this understanding, he explained.
“The benefits have to be understandable by the consumer, or there has to be a path for them to understand it” for them to buy it – and for PepsiCo to consider investing, he said.
“If the consumer doesn’t understand it. If they don’t believe it. Then they might try it, but there won’t be a repeat purchase because there is no intention,” he explained.
Help consumers experience the benefits
One way that companies can develop consumer understanding of efficacy is through “sensorial aspects,” or “how you touch on the senses,” Grubbs said.
For example, PepsiCo decided to acquire KeVita in part because it used the sensation of effervescences in its sparkling probiotic beverages to help consumers literally feel the benefits its product, he said.
“It is a totally different experience for the customer – it is an aspect of touching and elating the senses,” he said.
Another example is the heat that comes with ginger, he said. “Ginger is hot, obviously. People want ginger. Give them ginger! Have them feel and sense what ginger does to them, and that elevates the product to a different way and helps lift them along that efficacy curve and understand the real benefits of it."
Move beyond niche
Simply convincing consumers who are already predisposed to the idea of a product’s health benefit of its value is not enough to gain the attention of investors, such as PepsiCo, Grubbs added.
Rather, he said, companies also must demonstrate that a product or brand can appeal to the masses.
“Some of these [products] might be really niche. They might [resonate] with an audience who really cares about the benefit, so there is an understanding and appreciation of how it is benefiting them. But it also needs to reach a broader audience, to make sure they can succeed from a business perspective,” Grubbs said.
Building brand awareness is key for investors
While checking these boxes can prove a product’s concept, PepsiCo also wants to see the beginning of a brand and consumer loyalty to it, Grubbs said.
“Products on their own are important,” he explained. But, he said, “the brand, the essence of what is the connection with the consumer, also is something we really look for in part because we think that is what will continue to sustain that business.”
It also is a “key function of how we continue to think about these investments and business becoming a broader platform opportunity for the organization” not just in two to three years, but in 10 to 20 years.
With that in mind, the emerging brand’s mission needs to align with PepsiCo’s “purpose with performance” mission, Grubbs said. He explained this is important because it directly correlates to the depth of expertise in food and business that PepsiCo can offer investment partnerships.
For example, he explained, one of the ways that PepsiCo drives value for its investments is by sharing its strategies and insights from its own experiences, which more easily transfer to partners that share its values and long-term goals.
“The mindset here is if a company is operating on the 1.0 or 2.0, how do we kind of get them to the 5.0 or the 6.0 and skip some of the steps in that process. We do that by sharing our best practices” related to supply chain, retailer management and selectively leveraging PepsiCo’s distribution and ecommerce capabilities so that companies and brands can test and learn where they will succeed and where they are weak, he said.
Other key criteria
Beyond looking for a proven concept and at least a fundamental foundation for building a brand that is compatible with PepsiCo, the beverage giant also looks at velocity and profitability.
Grubbs acknowledges that the margins for a startup do not need to be as tight as for a later stage company, “but there needs to be a path and vision. What elements are put in place to relate to and achieve that,” he said.
PepsiCo also looks for companies and brands that show “at least a consideration for the regulatory environment,” he added.
He explained that some early stage companies might not understand what types of claims they can legally make, or what certifications they need, but at a minimum they need to be “mindful and show they aren’t flaunting the regulatory aspect of things.”
Finally, PepsiCo bases its decision on where to invest in part on what other partners are already working with a company.
“We are very mindful that we are not the only investor in most cases, and so we need to be great partners with the other investors,” which means “when some of those tough decisions occur in business, it is important to ensure we can work through things together,” he said.