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Why Frito-Lay's Move Towards "Clean Labels" Is Smart Marketing

Frito-Lay has decided to reformulate its snacks so that by mid-2011 more than half of the company's sales will come from products without things like MSG and artificial colorings and flavorings. The move illustrates why PepsiCo (PEP), Frito's corporate parent, is the most savvy and proactive of the major food companies when it comes to health and nutrition.

Recent ill-conceived remarks about obesity aside, PepsiCo executives are taking the lead in responding to Americans' increasingly sophisticated concerns about the healthfulness of food. A Deloitte survey done in March found that 31% of respondents said "over-processed food" was among their top concerns. And 29% said they were highly concerned about the "possible use of chemical ingredients that are detrimental to long-term health."

It's this kind of consumer sentiment that's inspiring major manufacturers, Pepsi among them, to ditch high fructose corn syrup and replace it with sugar, which is thought to be more natural.

Clearly, Pepsi can't stop making processed food any time soon, but it can make its products a bit healthier and more closely resembling actual food. In the age of Michelle Obama, that's what every major packaged food company (restaurants are a different story) wants to do, and virtually all them have pledged to cut back on some combination of sodium, calories and/or saturated fat.

But Frito-Lay's full-fledged embrace of what the industry likes to calls "clean labels," which was announced at the company's annual meeting last week, takes the endeavor to a whole new level. It's a rare acknowledgment that the healthfulness of a product depends not just on easily manipulated things like calories and fat, but on the quality of the ingredients that go into the product. Artificial food colorings, which can cause hyperactivity in children and are linked to cancer in lab rats, and MSG, which causes some people to have allergic reactions, are the kind of things that make food products sound more like a chemistry experiment than something made from things that once grew in soil or from a tree. According to that Deliotte survey, a majority of consumers -- 55% -- say they understand half or less of the ingredients in food these days.

The fact that Frito-Lay is already making products without chemical additives in its line of so-called natural snacks will no doubt help make the transition easier. The company has already figured out how to make Cheetos, for instance, without yellow 6, MSG and partially hydrogenated soybean oil that was extracted using hexane, a neurotoxic and highly flammable chemical.

The big challenge will be taking out all this "dirty" stuff without raising prices significantly, since Frito Lay's core customers are accustomed to getting their snacks for cheap.

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