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PepsiCo Is Creating a New Unit to Develop Smaller Brands

August 16, 2018, 12:11 PM UTC

PepsiCo is such a behemoth in the food and beverage world that it tends to operate in the realm of billions: 22 brands that generate more than $1 billion in annual sales; a more than $160 billion market cap; and more than 1 billion of its products consumed every day.

But now the consumer packaged goods giant wants to act small. To do it, PepsiCo is creating a new operating entity within the larger company that will focus on developing emerging brands.

“Tomorrow’s world looks different,” says Seth Kaufman, president of PepsiCo North America Nutrition, who will oversee the new unit, called the Hive. “Scale looks different than it does today.”

Going forward, there won’t be as many new multi-billion dollar brands since consumers have more choices amid a shifting retail landscape, Kaufman tells Fortune.

“The starting place for ideas has to change,” he says. “We’re extraordinarily good at big ideas and big spaces.” But some of the largest opportunities will come from seeding and growing much smaller concepts, he added.

The Hive will foster smaller brands that already exist within the company like Maker Oats and Stubborn Soda, as well as create new ones that play on emerging trends—say seaweed or birch water—that would otherwise not get the attention within the larger organization. On a recent earnings call, CEO Indra Nooyi, who recently announced she would be stepping down in October, called the Hive “a small entrepreneurial sort of agile group.”

The Hive is an attempt to solve an existential issue that’s emerged for Big Food companies as they attempt to answer to consumers who are demanding healthier, less-processed goods and are increasingly looking to smaller brands to meet their needs. The industry has been put under further pressure by activist investors demanding they cut costs and a hyper-competitive retail environment.

Kaufman says that the Hive will be fully staffed by the start of 2019 and will pull from both inside and outside the company for talent. “Bringing in outside thinking is going to be really important,” he says. The group will be run by longtime PepsiCo executive Emily Silver, who will report to Kaufman. Incoming CEO Ramon Laguarta was one of the chief architects of the plan, Kaufman says.