Artificial intelligence (AI) just created a way to cancel the crunch of Doritos.
The food and drink company PepsiCo (PEP) has had plenty of experience with overly noisy snacks.
In 2010, it introduced a biodegradable bag for Sun Chips. But sales started falling as consumers complained that the new packaging crinkled at 95 decibels – louder than a lawnmower. The new bags were quickly discontinued.
So when PepsiCo discovered another snack noise problem, it quickly jumped into action.
Doritos are a fan favorite among video game players. PepsiCo estimates that 85% of gamers have eaten Doritos in the past three months.
But the crunches the chips make are an annoyance. A third of gamers say that the crunching from other players distracts them from playing well.
So the company used AI to analyze more than 5,000 different crunch sounds.
And in six months it came up with “Doritos Silent,” an app that detects and silences crunching sounds while letting gamers’ voices through.
Now gamers can play and snack while keeping the crunch to themselves.
It sounds silly. But it just might convince people to buy more Doritos.
Here at Intelligent Income Daily, we’re focused on finding the safest income investments on the market. Artificial intelligence (AI) is creating new winners and losers in every industry. So it’s more important than ever to invest in companies that are embracing new technologies to build an advantage.
Today I want to show you how PepsiCo is using AI to transform its business. I’ll also show you why now is a good time to invest in this reliable dividend grower.
The Impact of AI at PepsiCo
In the 1990s, PepsiCo spent $50 million to redesign Doritos. It took two years to research what consumers wanted.
All that time and money led to just a few simple changes. The new Doritos had rounded corners, added more seasoning, and were 20% larger and 15% thinner.
It was a risky gamble. Market research back then meant surveys and interviews, which could be unreliable. The data analytics company Nielsen estimates that just 15% of newly launched products last more than two years.
But now, AI is taking the guesswork out of product design and speeding up the process – across the entire business…
Today, PepsiCo uses an AI tool called Tastewise to watch millions of menus and recipes online to figure out what people are eating and why.
And for social media, PepsiCo relies on an AI tool called Trendscope, which analyzes what’s being discussed across social media platforms.
These two tools have significantly reduced the time it takes to complete the research and design process. Instead of years, a new product can be launched in a matter of months.
And AI is also being used to improve the manufacturing process.
PepsiCo now relies on AI to analyze how much skin remained on peeled potatoes. Their AI was able to improve the process and save the company over $1 million each year.
And if that weren’t amazing enough, PepsiCo now uses an AI to scan Cheetos as they go through the cooking process, and it automatically adjusts the machines so that the snacks come out perfectly every time.
This reduces wasted batches that were burnt or undercooked.
It’s no wonder PepsiCo recently reported that they have improved productivity by $1 billion since 2019.
And it doesn’t stop there…
AI is also used to improve sales.
PepsiCo’s “Ada” AI uses the company’s treasure trove of data – on over 100 million American households and over 500,000 stores – to make advertisements more impactful.
Ada allows the marketing team to test ads on 2.5 times as many customers they used to… before paying to launch them.
And “Pep Worx” tells stores what items to stock, where to place them, and what promotions to use to attract the most customers.
PepsiCo used this tool to launch a new product called Quaker Overnight, an oatmeal product meant to be stored in the refrigerator “overnight for a cool and creamy—yet hearty—no-cook way to enjoy a delicious oats breakfast.”
The result?
The customers Pep Worx targeted made up 80% of Quaker Overnight’s sales in its first year.
If PepsiCo had any hesitation about moving forward with AI, they don’t anymore.
Why Now Is a Good Time to Invest in PepsiCo
PepsiCo’s Chief Strategy and Transformation Officer Athina Kanioura says that the company has spent hundreds of millions of dollars to go all-in on AI over the past few years.
According to Kanioura, AI will be a key tool in helping the company reach its goal of expanding margins by 20 to 30 basis points each year.
That’s the kind of forward-thinking that will keep the company competitive for decades to come.
So it’s no surprise that PepsiCo is one of the most reliable dividend stocks on the market.
PepsiCo has increased its dividend 51 years in a row. And that means it has been through six major recessions while continuing to reward shareholders with growing income.
I expect the upcoming recession will be no different.
And right now, PepsiCo shares yield 3% and trade at 20.5x earnings for 2024.
That’s a rare 11% discount from its historical average of 23x earnings over the past decade. And with the rollout of AI across its entire business, this discount might not last long.
So now is a great time to invest in PepsiCo.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily
Source: Wide Moat Research