Is Pepsi the "next generation" of yogurt?

Early this week Pepsi announced it is entering the Yogurt market via a joint venture partnership with German dairy company Theo Müller.  The joint venture will be run as the Müller Quaker Dairy and called Müller by Quaker and will begin by being sold in the northeast US.  It appears that they will offer at least 3 different types of yogurt: conventional, Greek, and Fruit Up (fruit mousse in top of the yogurt that gets stirred in).  The yogurt will be packaged in a square contained with one corner filled with an ingredient that the consumer can mix in; including caramelized almonds, tiny chocolate-covered crunch balls and granola.

Pepsi, which in addition to its traditional beverage business also owns Quaker, Gatorade, Tropicana, and Frito-Lay, is looking to diversify its portfolio as the soda category continues to be squeezed by health trends and the company looks to jump start long-term growth.


Why Yogurt?
Yogurt offers Pepsi three advantages.  First, its a fast growing category (+9%) that outpaces traditional grocery categories as its alined with consumer health an wellness tailwinds.  Second, it gets Pepsi into a new section of the store - the dairy aisle.  And third, Pepsi could likely leverage its refrigerated Tropicana DSD network to capture significant cost scale.


Will it be successful?  
Pepsi research suggests that Americans consume ~12 pounds of yogurt a year, which is half as much as Canadians and only a third the amount of Europeans.  Pepsi attributes this gap to the US category offerings being boring vs. international offerings: “It’s been an ‘I gotta have it because it’s good for me’ kind of a product . . .The 'wanna have it' was missing” according to Dr. Mehmood Khan, who oversees PepsiCo’s global research and development and was interviewed in a recent New York Times article. According to that article, Müller by Quaker will fill the current product offering void by offering a a new variety yogurt with its own unique texture that is between Greek and conventional yogurts.  The product will be marketed under the tagline "European for Yummy".  


While General Mills (Yoplait) and Dannon make up 50% of category sales, much of the recent category growth has been driven by Greek yogurt brands Fage and Chobani.  The fact that these smaller brands have gained traction and shelf space would suggest a brand backed by a CPG manufacturer with the clout and deep pockets of Pepsi would also be able to muscle its way into the category assuming the product is truly differentiated and delicious.  It also wouldn't be surprising to see Pepsi bring its soda strategy to life in this category by supporting the brand launch with an enormous advertising budget as well as running a significant amount of promotions focuses on BOGO's and bulk discounts.  The yogurt category has seen plenty of innovation over the past several years and I believe many category consumers are willing to experiment with new brands and flavors, but the category will remain highly competitive and unlike soda its wont just be a two horse race.


In conclusion, I believe Pepsi can clearly make a splash in the category and will help fuel overall growth.  However, I have a hard time believing the brand will climb higher than a #4 share behind Dannon, Yoplait, and Private Label, and may even have a hard time in the short-term outselling some of the hot Greek Yogurt brands.  One could see the brand, perhaps, ultimately reaching a 10-15% market share over the next 3 years.