Pepsi Adapts to Chinese Snack Tastes

PepsiCo (NYSE:PEP) is expanding its presence in China. The beverage and snack-food company opened a new potato-chip production plant in the city of Wuhan this week, The Wall Street Journal noted.

Over the next three years, Pepsi will invest $2.5 billion in China, hoping to lure consumers with its iconic soft drinks, as well as products tailored to local tastes, including white fungus oatmeal, blueberry Gatorade and hot-and-sour fish-soup-flavored potato chips.

Pepsi is targeting China’s emerging rural markets where Western food products are still largely unknown, betting that rising incomes will allow hundreds of millions of new Chinese consumers to partake of its snack-food goodness.

Pepsi has established a research facility in Shanghai to adapt its products to complement Chinese preferences in cuisine. It formed a joint venture to handle bottling operations in China and will now focus on developing food products for what’s rapidly becoming the world’s largest consumer market.

By investing in China, Pepsi hopes to offset market share setbacks in the U.S., where traditional rival Coca-Cola (NYSE:KO) is making strides.

Still, Western products like soft drinks and potato chips are new in China, and consumers purchase them at much lower rates than their North American counterparts. Pepsi believes that will change, despite any temporary economic slowdown, and is betting on the future.

Indeed, the company now derives fully 34% — about $22 billion — of its annual revenues from emerging markets, including China.

Pepsi shares edged up fractionally in Wednesday trading, at just over $70 a share.

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