Market Overview

PEP and DMND Play Organic Food Game


According to an article on, consumers now have options for classic junk treats such as Lay's potato chips and Frito's in the form of alternatives claiming to be all-natural and organic. Although the claim of a "healthy" potato chip can prompt most nutritionists to smile in at the irony, the key to winning the snack game is the packaging and marketing, which is sucking in huge amounts of money.

Pepsi (NYSE: PEP), the owner of Frito-Lay, incurred $3 billion in advertising and marketing expenses for Lay's, Doritos and Gatorade, among other products, in 2009. Most of the marketing was aimed at retaining market share and advertising the latest iteration of their flagship products.

The snack foods industry had a great run last year with Diamond Foods (NASDAQ: DMND) gaining 84% and ConAgra (NYSE: CAG) adding 74%. Although PEP’s 35% rise lagged behind the 53% gain in the S&P 500, the company fared better than the broader market when the market crashed during September 2008-March 2009. Over two years, Pepsi lost only 1% of its value, while the S&P 500 fell 25%.

Organic snacks usually cost twice as much for a bag with half the amount as the traditional snack. Although these costs are incurred by smaller companies to cover the costs of making the product, the additional charges come as profit for big companies, such as Pepsi, who have the necessary infrastructure already in place.

DMND and PEP are already positioning themselves in the organic food market with products such as Emerald Nuts, Kettle Chips, organic Tostitos and Baked Lay's, which break away from their traditional image.

However, CAG is lagging behind, with its snacks, Slim Jims and Orville Redenbacher Popcorn, lacking the competitive element that products from Diamond and Pepsi enjoy.

Read more from media.

Posted-In: TheStreet.comMedia


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