Are the cola wars at an end?
Brace for the yogurt wars, as PepsiCo, long focused on battling its archrival, Coca-Cola, takes on the likes of Dannon and General Mills, not to mention Fage and Chobani.
In the most visible sign yet of its efforts to curb its reliance on soda sales, PepsiCo is starting to sell yogurt in the Northeast and midatlantic states.
The products will initially be manufactured in Europe by Theo Muller, a large, privately held German dairy company that has formed a joint venture with PepsiCo to capitalize on the growing yogurt market in the United States.
"We're very excited about this," said Sam Lteif, chief executive of Muller Quaker Dairy, the joint venture. "There's a huge opportunity for dairy in the U.S. market, and we're optimistic about getting into it."
So confident are the two companies that they are investing $206 million in a 363,000-square-foot plant in Batavia, N.Y., announced in February, that will employ some 180 people and churn out 5 billion cups of yogurt a year.
PepsiCo, under its chief executive, Indra K. Nooyi, has been working to decrease its reliance on sugary carbonated beverages and snacks by developing new products and retooling old ones to increase their nutritional quality while remaining true to the company's more playful roots.
Ms. Nooyi calls this the "fun for you, better for you, good for you" strategy, and it has led to innovations that have reduced sodium in Lays potato chips and other snack chips and introduced new sweeteners to reduce calories in juice products such as Trop 50 and sodas such as Pepsi Next.
The goal with Muller by Quaker is to add fun to yogurt, which Americans have regarded as a dutiful but not delicious snack.
"It's been an 'I gotta have it because it's good for me' kind of a product," said Dr. Mehmood Khan, who oversees PepsiCo's global research and development. "The 'wanna have it' was missing."
Or as Stefan Muller, the great-grandson of Muller's founder, said: "Here in America, yogurt is so boring."
He noted that Americans on average consumed 12 pounds of yogurt a year, or half as much as Canadians and a third the amount of Europeans. "We look at the products, and it's no wonder it's so low," he said.
Muller by Quaker will try to change that with what Mr. Lteif calls "mainstream premium" products that fill a gap between mass brands like Dannon and Yoplait and niche Greek yogurts like Fage and Chobani.
Two varieties of the Muller by Quaker yogurts, one conventional and one Greek, come in square rather than traditional round packages with one corner filled with an ingredient that the consumer can add to the yogurt by folding the corner or using a spoon.
Besides traditional fruit flavors like strawberry and blueberry, these supplements include caramelized almonds, tiny chocolate-covered crunch balls, and granola.
The third variety is called Fruit Up because the fruit comes in a mousse that sits on top of the yogurt for the consumer to stir in. That allows the consumer to smell the peaches or raspberries as soon as the foil cover is removed.
Muller by Quaker also seeks to address one of the biggest consumer complaints about yogurt: its texture. Consumers find Greek yogurts dry and chalky, while conventional yogurt is viewed as watery and tasteless.
"You have five senses, and we're aiming to hit at least four of them with these products," Mr. Lteif said.
Yogurt is one of the hottest categories of the food market, stoked by the success of Greek yogurts, which are thicker and higher in protein.
Yogurt sales in the United States this year will add up to roughly $7 billion, according to the consumer research firm Mintel, an increase of 9 percent over last year -- when sales increased by 7.5 percent.
"In the food business, growth of 1 to 2 percent is considered very good, particularly for a mature product like yogurt," said John Frank, category manager for consumer packaged goods reports at Mintel. "This kind of growth is remarkable."
In the United States, Dannon and Yoplait, in which General Mills has a 51 percent stake, are by far the dominant players. Dannon has 25.5 percent of the sales in supermarkets, drugstores, and mass merchandise stores other than Wal-Mart, and Yoplait is at 26.2 percent, according to the SymphonyIRI Group, a market research firm.
But the inroads of brands like Fage and Chobani in driving new sales of yogurt gave PepsiCo confidence that there was room for another brand.
One of the biggest challenges for companies trying to break into the yogurt market is getting shelf space in the dairy cases of grocery stores. PepsiCo, with its vaunted distribution system, already sells its Tropicana juices there and has additional clout with retailers through its Frito-Lay and beverage businesses.
Analysts have long said that PepsiCo failed to exploit the Quaker brand, which it acquired in 2000 as part of its shift to more nutritional foods.
"Pepsi has so far mostly refocused unhealthy products to become healthy as opposed to leveraging and expanding the Quaker brand," said Ali Dibadj, a beverage analyst at Sanford Bernstein. "They've missed an opportunity with Quaker in nuts and other healthy products."
Mr. Khan's research team has been working largely out of Quaker's old headquarters in Chicago, and its innovations are just beginning to arrive in the market. Many of them are built around dairy, which is becoming a larger piece of PepsiCo's business.
In 2009, it created a joint venture with Almarai, a big Saudi Arabian dairy company, and last year, it completed its purchase of Wimm-Bill-Dann, a large Russian dairy company.
The Russian acquisition increased sales of its healthier portfolio of products to about $13 billion annually, and PepsiCo expects that wedge of its pie to grow to $30 billion, driven largely by yogurt and dairy, by 2020.
Last year, for example, a protein the team extracted from milk was added to Gatorade Recovery, which perhaps explains Coca-Cola's recent agreement to distribute a small dairy-based sports drink, Core Power, which is owned by a dairy cooperative.
Quaker this year introduced Real Medleys, a line of instant multigrain oatmeal with added fruits and nuts that can be eaten right out of the container, and Mr. Khan said the company could not meet demand for the product.
Such changes have led at least one Wall Street analyst to voice what had been regarded as heresy and spoken only in whispers. "The cola wars have abated," said John Faucher, the beverage analyst at JPMorgan Chase. "Pepsi is now focused on growing all the beverages it sells -- teas, juices, Gatorade -- and not just selling more carbonated soda than Coke at the expense of profit margins."
Let the yogurt wars begin.