Quaker sees boost as consumers seek value

CHICAGO (Reuters) - Quaker Oats' U.S. business is performing well as consumers looking to save money cook more at home, which could raise its profile as its parent company PepsiCo Inc (PEP.N) sees volume in its U.S. soft drink and snack businesses slow in the recession.

An emphasis on price is causing a consumer migration from instant oatmeal, which costs about 40 cents a bowl, to cooking oats, at a price of only 15 cents a bowl, Quaker's North American President Mark Schiller said at the Reuters Food and Agriculture Summit in Chicago on Tuesday.

"It's a significant premium," Schiller said, referring to instant oatmeal. "I think consumers recognize that."

Aside from Quaker Oats, Schiller said the company's Rice-A-Roni and Aunt Jemima products were also selling "exceptionally well."

"People ... are switching from restaurants and making pancakes at home for their families," Schiller said, adding that at-home chefs are making large meals with several courses.

"Things like Rice-A-Roni that you can buy on sale for $1 a box and serve quite a few people do very well in this economy."

Back in late 2000, when PepsiCo announced its $13.4 billion purchase of Quaker, analysts saw the Gatorade sports drink as the deal's crown jewel. At that time, they speculated that the maker of Pepsi-Cola and Frito-Lay snacks would later sell Quaker's other brands.

Schiller said he could not predict the future, but that divestitures were "not in the cards right now."

"Those businesses have performed exceptionally well under PepsiCo's watch," he said. "There's no reason for us to not want to have them in the portfolio. They're not a drag financially and they're not businesses that we're struggling to figure out what to do with."

OATMEAL AS THE NEW BLACK

In fact the oatmeal industry is getting a boost, Schiller said, as successful introductions of it at Starbucks Corp (SBUX.O) and Jamba Inc (JMBA.O) restaurants have created a buzz around the classic hot cereal.

"There are a lot of people interested in oatmeal -- it's becoming the new black," Schiller said. He declined to say whether more people were ordering oatmeal at restaurants in place of higher-priced items.

"I don't know specifically, but ... if our sales are any indication, the answer is yes, because we're doing quite well in the foodservice arena."

PepsiCo's fourth-quarter domestic sales volume was flat in its food business and down 6 percent in its drinks business.

Quaker Foods North America had 2008 revenue of $1.9 billion, making up about 4 percent of PepsiCo's total revenue. Schiller sees that percentage growing as consumer trends continue to favor foods that are healthy.

"We are PepsiCo's best card in health and wellness. It is a phenomenally iconic brand," Schiller said of Quaker. "In a world that has gone health and wellness, this brand has tremendous growth potential, both domestically and around the world. We intend to exploit this potential."

(Editing by Phil Berlowitz)