A Case Study: PepsiCo and Lays Andinas

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In 2008, PepsiCo partnered with The International Potato Center (CIP), and the Peruvian Peruvian nonprofit organizations FOVIDA [1] and CAPAC [2] to launch a native potato chip product. Integral to this particular launch of potato chips was the integration of Corporate Social Responsibility (CSR) into the market chain.

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Contents

The Context

The Andean region is one of the most naturally diverse regions in the world. It boasts 4000 varieties of potatoes. In some regions the farmers grow 50 to 100 varieties on each plot. However, this richness in biodiversity has not translated into financial, human, and physical capital. The Andes has some of the highest levels of poverty, illiteracy and malnutrition. Andean communities lack basic needs such as electricity, tap water and sewage facilities.

Native potato farmers also face additional challenges. They must contend with the erratic, fluctuating climatic conditions of the Andes. Temperatures fluctuate between highs of 20 degrees Celisus to -25 degrees Celsius. Sudden frost, hail and drought can negatively impact production. Farmers also have to contend with other vulnerabilities such as plant pests that can result in yield losses and/or reduction in product quality.

However, against this backdrop of poverty, environmental challenges and other constraints, Papa Andina[3],a regional initiative coordinated by CIP, has recognized the value of native potatoes. Papa Andina has developed the Participatory Market Chain Approach (PMCA) to trigger market innovation to identify and exploit business opportunities for native potato farmers. A few of the products developed through the efforts of Papa Andina are:

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Tikapapa (bagged fresh native potatoes that emphasized social responsibility and fair trade)


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Jalca Chips (Coloured chips sold in airports)


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Tunta (an artesian product made from freeze dried potatoes)

The Partnership

Under the partnership framework, PepsiCo agreed to commit to the following: offer native potato farmers a contract that guaranteed demand for production; short payment delays; and a price that would leave farmers with a profit margin.


The responsibilities of the nonprofit organizations (CAPAC and FOVIDA) included organising the farmers, contract management, capacity building, and ensuring that quality requirements were met. Also, partnering with CIP, the nonprofits are working on developing a quality seed program to not only satisfy PepsiCo's quality requirements but also to improve productivity. Papa Andina played an integral role in facilitating the launch and development of the product.

The Product

The product was positioned in a high-end niche market boasting high quality ingredients and linking to the health and social sensitivities of that particular market. The product contained no salt, zero trans fats and was made with high quality sunflower oil. It was launched in conjunction with Peru's celebration of the first National Day of the Potato in 2008. PepsiCo also developed a commercial about the product emphasizing not only the health benefits of the native potato but the potatoes cultural links to Peru.

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Outcomes

Impact for farmers: Initial positive impacts for farmers was an increase in profits although modest but better than the previous years. Reports also indicate increases in self-esteem and the development on an entrepreneurial attitude in the communities where PepsiCo sourced the potatoes.

Initiativa Papas Andinas: Is a public-private open alliance that includes members from the major supermarket chains in Peru, PepsiCo, nonprofits FOVIDA and CAPAC, Pepsico as well as representatives from the gastronomical sector. The initiative works to promote native potato trade based on values such as culture, health and poverty reduction.

Creative Imitation: Following the launch of Lays Andinas, the second biggest chip producer in Peru, Mr. Chips, launched a native potato product. Unlike Lays Andinas, the product was targeted at a mass market.


References

  • Thomann, A. et al. "Native Potato Market Chain and Poverty Reduction: Innovation around Corporate Social Responsibility."
  • Manrique, Kurt. et al. "Tikapapa, an example of a marketing scheme to utilize potato biodiversity to improve livelihoods of small scale Andean farmers in Peru."
  • Dick-Meinzen, Ruth S. et al. "Underground assets: potato biodiversity to improve livelihoods of the poor."

See also