PepsiCo tries marketing 'healthier' snacks to African-Americans and Latinos

By Chad Terhune
Wall Street Journal
(October. 5, 2006) CHICAGO - A new rack of PepsiCo Inc.'s Baked Doritos and Baked Lay's potato chips greets customers inside the door of the Sammy G convenience store here.

But most customers who frequent the inner-city store bypass the lower-fat chips. Instead, they grab the 25-cent packages of Flamin' Hot Cheetos and Nacho Cheese Doritos by the cash register. In store slang, those popular snacks are known simply as "quarters."

Even so, Rafael Herrera, a 30-year-old district sales manager for Pepsi's Frito-Lay unit, considers Sammy G a big breakthrough for his company's lower-calorie products - simply because the store agreed to stock them. Managers of other stores he deals with have refused outright. "The baked snacks don't sell as fast," he concedes.

Pepsi, with net income of $4.1 billion last year on revenue of $32.6 billion, is one of the biggest sellers of sugary colas and high-calorie snacks. That puts the company in the crosshairs of a growing public-health debate over obesity, nutrition and marketing to children. This year, Pepsi is spending millions on a test program in Chicago, trying to encourage inner-city African-Americans and Latinos to adopt healthier eating and exercise habits - without seeing any loss in sales for the company.

Whether a giant snack and soda maker should proselytize for healthier diets - or can pull off so contrarian a message - remains a question within the company's Purchase, N.Y., headquarters and among critics. Beyond selling the idea to consumers, Pepsi must persuade skeptical salesmen like Mr. Herrera, whose pay is driven by sales. Winning over store managers, accustomed to selling huge volumes of colas and salty treats, is even harder.

Mr. Herrera, a tall, athletic-looking father of two, grew up in Chicago. His relationships with neighborhood bodegas are one of the company's most-powerful assets. But even he was reluctant to bother customers about the new snacks until he went to an employee health fair and learned some unsettling news about his own health.

About 32 percent of all U.S. adults are obese, according to the federal Centers for Disease Control and Prevention. Obesity afflicts 45 percent of blacks and 37 percent of Mexican-Americans. In some of the neighborhoods Pepsi is targeting, more than 40 percent of children are overweight, according to the nonprofit Consortium to Lower Obesity in Chicago Children.

"We want to use Chicago as a lab to understand where should we play, as it relates to health and wellness. What can we do? What do we have a responsibility to do?" says Steve Reinemund, PepsiCo's chairman. "This is also a key growth area at the intersection of business and the public interest."

Critics contend Pepsi's latest efforts are merely aimed at fattening its bottom line. For instance, they say baked snacks might be lower in fat and calories, but are still junk food. "Pepsi is shameless," says Marion Nestle, professor of nutrition, food studies and public health at New York University. She says it stands out among food companies for touting marginal health claims to gain a business edge. "Are Baked Lay's really an improvement? Why not eat fewer potato chips?"

Pepsi's marketing machine, critics say, is a big reason Latinos and blacks are among the biggest consumers of sodas and snacks. African-Americans drink a disproportionately higher amount of Pepsi-Cola - and less Aquafina bottled water and Diet Pepsi - compared to other ethnic groups, according to research firm Information Resources Inc. It says the average Hispanic is 27 percent more likely to buy Doritos and 64 percent more likely to buy Cheetos than a white consumer.

Pepsi spent more than $1 billion on marketing in the U.S. last year. It advertises Cheetos to kids with a character named Chester Cheetah, who dons sunglasses while surfing or skateboarding. Baked Cheetos have less fat and calories than regular ones. Even so, a two-ounce serving of baked Cheetos has 260 calories; a regular Snickers candy bar of the same size has 280.

Matt Longjohn, executive director of the Consortium to Lower Obesity in Chicago Children, says Pepsi is moving in the right direction. "Is Pepsi contradicting itself on some level? Absolutely," he says. "But that doesn't mean what they are doing is completely malicious." Pepsi's foundation recently gave the consortium $1.7 million for an obesity-prevention program.

In 2003, Pepsi became the first major food manufacturer to remove artery-clogging trans fats from its snacks. The next year, it started putting a green circle called a "Smart Spot" on some items. More than 250 products, from Diet Pepsi to reduced sugar Cap'n Crunch Swirled Berries cereal, now carry the label. The company's labeling criteria specify limits on fat, cholesterol, sodium and added sugar, using government recommendations.

The company bills this as "smart choices made easy." Inside Pepsi, some grumbled that it was telling consumers that Pepsi-Cola and some of its other big brands were dumb choices.

For the first half of 2006, sales of Smart Spot items - which include drinks like Aquafina water and Gatorade - grew 15 percent, compared to 5 percent for core products. Pepsi's core business has been hurt by poor sales of Doritos and a seven-year U.S. slump for Pepsi-Cola, similar to the falling sales of Coca-Cola Classic.

Until now, Pepsi's marketing of its healthier products focused on upper-income, suburban mothers, including printed ads with Meredith Vieira, now a co-host of the Today show. In one TV ad, a white woman receives cheers when she buys Baked Lay's from an office vending machine.

Such ads don't work as well with some minorities, says Pepsi's Reinemund, because they don't identify with those people as role models and respond better to a direct message. He pushed for the Chicago effort to test more grass-roots marketing and education. "If we were to convert younger children to eating Baked Lay's versus regular Lay's it seems like it might be a good idea," he says.

Other food companies are also reaching out to minorities on health issues. This summer, Coke sponsored MegaFest, an Atlanta conference geared to African-Americans, during which it offered 100,000 attendees nutritional advice and aerobics set to gospel music. Kraft Foods Inc. has worked with the National Latino Children's Institute to develop a curriculum on healthy eating and exercise. General Mills Inc. has collaborated with Black Entertainment Television Foundation to offer health information to African-American women.

At a grocery store in an African-American neighborhood near the YMCA, manager Yaser Ahmad says he didn't see any reason to stock more diet sodas and baked chips when Pepsi first suggested it. "Not a lot of people are watching their weight in this community. My clientele buys a lot of soda pop, potato chips and candy." But after repeated requests from Pepsi, he put up a display of 100-calorie packs of Doritos for $1.99.

"They went like crazy. We were shocked," he says.

The following week, Mr. Herrera and more than 100 other Pepsi employees built a playground in Chicago's Little Village neighborhood, known as the "Mexican capital of the Midwest." Mr. Herrera grew up near the area, raised by parents who came from Mexico and Colombia. On a cold, rainy day, he shoveled mulch into wheelbarrows and poured concrete.

A few days later, at an employee health fair that was part of the program, a nurse found that Herrera had high blood pressure and high cholesterol. "She told me, 'You are an accident waiting to happen.' It was definitely a wake-up call," he says.

Pepsi declines to discuss sales performance in the Chicago test program, which will continue through next year. The company is encouraged that Smart Spot products are more available in chain stores. But cracking into smaller, independent stores has proven difficult, according to company executives.

Pepsi didn't create special financial incentives for salespeople involved in the Chicago test. Rather, a spokeswoman says "the growth of Smart Spot is built into the annual performance reviews of the sales force. Their compensation would reflect their success in meeting that objective."

Managers like Herrera still are penalized if snacks go stale. To minimize his losses, he has coached salespeople to pull baked snacks from stores two weeks before the expiration date so he can ship unsold bags to suburban Wal-Mart and Target stores where they sell faster.

That strategy has helped Herrera have the second-lowest number of "unsaleables" among the 27 district managers in Chicago.

"I have staled out some bags," he says. "I'm trying to shoot up to No. 1."


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