PepsiCo’s plan to boost Lay’s sales: ‘Real potatoes’

The snack has always been made with farm-grown potatoes. But executives behind the brand don’t think that’s been clear enough to consumers, and they are leaving nothing to chance.

Lay’s is America’s top-selling brand of potato chips, a category synonymous with junk food. Its maker, PepsiCo, is convinced Lay’s can have an even stronger appeal by marketing the brand’s farm roots and appearing healthier.

Some Lay’s varieties are switching to olive or avocado oil from seed and corn oils. Barbecue flavors will be reformulated to remove artificial coloring used to give the chips their signature red-brown color.

Lay’s is redoing the bags too, ditching the crinkly sheen for a heavier, matte finish emblazoned with pictures of potatoes and chips. The bag’s front trumpets the lack of artificial flavors and dyes; the back describes Herman Lay’s original chip recipe, which PepsiCo says is still in use but has evolved over more than 80 years.

“Consumer preferences are changing faster and expectations are moving and that’s what we are focused on," said Rachel Ferdinando, chief executive of PepsiCo’s U.S. food business.

PepsiCo needs a jolt. Its share price is down about 8.7% so far this year through Wednesday, while broader stock indexes have gained. Activist investor Elliott Investment Management has taken a big stake in PepsiCo and is pushing for changes across the company’s food and beverage portfolio. Worst of all, consumers are buying less of its snacks.

On Thursday Chief Executive Ramon Laguarta pledged to turn around its North American food business by reshaping the products it sells and cutting costs among other initiatives. The commitment came after the unit, which includes products like Lay’s, Doritos and Cheetos, posted a sharp decline in sales volume in the latest quarter.

The business, which generates some 60% of PepsiCo’s annual sales, has posted slowing sales growth in each quarter since 2022.

For years PepsiCo has gradually reduced the sodium, saturated fat and sugar content in its products. But pressure is growing on food makers to make more drastic changes. The Make America Healthy Again movement, championed by Health Secretary Robert F. Kennedy Jr., has gained traction in Washington, taking aim at artificial colors and seed oils.

Food companies are racing to switch up supply chains and reformulate products to meet the moment. Whether consumers will bite is a different issue.

Field of dreams

A surprising data point reverberated through the halls of PepsiCo’s Plano, Texas-based food office in 2021. Consumer research revealed that 42% of people didn’t know Lay’s chips are made out of real potatoes.

“That really was the wake-up call," said Ferdinando.

PepsiCo decided the brand needed to reclaim its roots in the spud. Some are grown near Hancock, Wis., a small village smack in the middle of a state best known for its cheese.

Potatoes need to be plucked from the ground and handled with care to prevent browning that can mar otherwise perfect chips. This has become a science for Jeremie Pavelski, a farmer whose family has been supplying potatoes to Lay’s for more than 70 years.

After the potatoes are picked, they are washed and then carted off in big trucks to manufacturing facilities. At the plants, the spuds are cut, fried, coated in seasoning and bagged while still warm. In parts of Wisconsin, shoppers can eat a bag of Lay’s made from potatoes that were harvested that same morning.

While PepsiCo wants to reformulate Lay’s to lean more on natural ingredients, it wants to maintain the chips’ previous taste and appearance.

The company ran into some roadblocks. Colors derived from plants, vegetables or other natural products behave differently than artificial ones, and are more sensitive to factors like light and temperature. They can interact with ingredients in ways that could impact how long chips stay fresh on the shelf, their flavor and how they look.

Adding vegetable juice for color meant that food scientists had to closely monitor the taste, often rebalancing the recipe and testing it extensively to ensure it mimicked the original. The chips’ color alone can impact perception of taste, the company found.

Remaking the food business

PepsiCo’s food business, once an engine of growth, has come under pressure. Some consumers are abandoning salty snacks altogether. More Americans are taking GLP-1 weight-loss drugs, which curb their hunger for chips.

Snacks like Lay’s and Tostitos had sharp sales growth during the pandemic and steep price increases followed.

“Snacking price points are an issue," wrote RBC Capital Markets analyst Nik Modi in a note this month. He said that major brands such as Lay’s are struggling to boost sales volumes, and that PepsiCo needs to lower prices to win back consumers.

Ferdinando said the company is “relentlessly focused on affordability." PepsiCo has developed pack sizes at various price points, in part, to create options for value-seeking consumers. The company said it doesn’t plan to raise Lay’s prices as a result of the reformulation.

“Our rebrand is rooted in consumer feedback," Ferdinando said. “It’s not change for change’s sake."

Write to Laura Cooper at laura.cooper@wsj.com