Why PepsiCo Wants Lay's to Do Better Than Being the #1 Potato Chip in China

How popular is the Pepsi brand in China? Exhibit A, above is an actual photo your scribe recently took in a grocery store on Shuicheng Road, Shanghai. Having recently moved here, it's fascinating to see how the cola wars are playing out on Chinese soil. 

Coca-Cola and PepsiCo are competing, hard, for the 1.3 billion mouths of China for a sales boost. The latest volley: PepsiCo just opened a new "green" production facility with "the capacity to produce approximately 15,000 tons of Lay's potato chips annually." Located in the central city of Wuhan, the facility is a platform to reach into populous central and western China. But raw capacity isn't all of PepsiCo's strategy to make China an even bigger market for the Lay's brand.

Pepsi's new Wuhan plant — its sixth such facility in China — comes with all the "green" bells and whistles. Adhering to Leadership in Energy and Environmental Design (LEED) criteria, the factory aims to use a third less water and a fifth less power than earlier facilities. Though China is a major polluter, Pepsi's factory is in line with a move in the country toward sustainability, for both health and financial reasons. The snack food growth focus follows closely the brand's deal with China bottler Tingyi aimed at expanding PepsiCo's reach in the nation's beverage market, expected to be the world's largest by 2015.

In a blog post titled "Spreading Snacking Happiness," the brand explains that

It’s not enough to just have locally relevant products and packaging that cater to local taste and preferences, we also need to have muscular brands that consumers can relate to and with which they’ll feel proud to be associated. We have accomplished this in 2 ways: First, by translating the Lay’s brand to have a unique and powerful meaning. Lay’s in Chinese is called ‘Le Shi’ which means Happy Things/Moments (Watch the video - below - called “Bring Happiness Home” that capitalizes on this meaning and connects to other popular food and beverage brands in our portfolio). Second, by developing a powerful brand philosophy that echoes Chinese sentiment while establishing Lay’s as one of life’s irresistible little pleasures. The brand slogan has a double meaning in Chinese and connotes ‘Every little crisp/little moment could make you happy.’

What's more, it adds, "Wuhan is home to a wide variety of delicious and unique snacks, such as Mianwo, 'salty donuts' made with rice flour and flavored with shallots, and flower-shaped shao mai dumplings with colorful fillings. This culinary tradition, along with a reputation as an economic and transportation hub, make Wuhan a strong choice as the site of PepsiCo sixth snacks plant in China."

According to The Wall Street Journal, a new R&D facility in Shanghai will work to produce products geared to China's tastes. (Note: PepsiCo Careers is now looking for a Shanghai-based lab manager for its Pepsico Asia Research & Development Center!) And according to PepsiCo, its top-selling flavors in China are Sichuan "hot and sour fish soup" and Guangdong "pepper and salt fried shrimp."

Localization, as we're repeatedly noted, is an absolute must for food brands in China. In a blog post that was originally published in the Financial Times on the three big lessons for delighting consumers in China, PepsiCo chairman and CEO Indra Nooyi notes that in addition to offering a wide variety of choices and being respectful in how it does business in the market, "local tastes are king" and so Lay's is offered 

"...in dozens of unique flavors: from to “Numb and Spicy Hot Pot” and “Hot and Sour Fish Soup” to my local favorite—“Cucumber.” It’s a tribute to globalization that nearly 40 percent of all Chinese have now tried Lay’s potato chips. It’s a testament to the unlimited growth potential here that 60 percent of the population—more than 800,000,000 people—have yet to experience them. It’s one of the many reasons why China is central to the long-term growth strategy of companies like PepsiCo."

The potential for PepsiCo in China is astounding. While Lay's is the best-selling potato chip brand in China, the company currently only owns about 2 percent of China's nearly 80 billion yuan ($12.9 billion) snack sector. At its blog, PepsiCo notes that nearly "forty percent of Chinese households have tried Lay’s products." Without a doubt, "China will be the largest consumer market in the next decade," Nooyi commented to the WSJ. 

But PepsiCo's China profits won't come without a fight. Coca-Cola knows the importance of China and recently committed $4 billion over three years to expand its reach there. PepsiCo is in China for the long haul, as Nooyi's blog post notes:

"...how you do business in China is as important as what you do. Corporations are expected to build their businesses in a way that also helps China grow, while meeting the needs of China’s people. We’re supporting China’s 12th Five-Year Plan through continuous investments across our operations in China, advancing rural and regional development and implementing measures to protect the environment. The new plant in Wuhan is expected to use 30 percent less water and 20 percent less energy than our 2006 China foods facilities, which will preserve scarce resources while improving our business performance. In China, as in every country, what is good for business can and should be good for the world."