Pepsi, Diamond Play Healthy Snack-Food Game

BOSTON (TheStreet) -- The greening of America has stretched into snack foods.

Alongside classics like Lay's potato chips and Frito's, consumers can find alternatives claiming to be all-natural and organic, alleviating guilt that comes with buying the salt- and fat-laden treats. While the thought of a "healthy" potato chip would have most nutritionists rolling their eyes, the key to winning the snack game is the packaging.

A substantial cost is marketing. In 2009, Pepsi(PEP), which owns Frito-Lay, spent nearly $3 billion on advertising and marketing products including Lay's, Doritos and Gatorade. Most of the marketing is targeted at retaining market share and advertising the latest iteration of their flagship products, like cheeseburger-flavored Doritos, which are, in fact, real.

With this massive and organized machine in place, food companies can easily take over the newest lucrative segment of the snack industry. Those seeking to expand into the healthy-snack industry should be best prepared to win market share.

Snack foods is an attractive industry. Diamond Foods(DMND) and ConAgra(CAG) beat the stock market over the past year, as Diamond gained 84% and ConAgra tacked on 74%. While Pepsi's 35% increase lagged behind the S&P 500's gain of 53%, it's important to remember that the company also fared better than the broader market from September 2008 to March 2009, when stocks crashed. Over two years, Pepsi lost 1% of its value, while the S&P 500 fell 25%.

As opposed to "real" food producers such as General Mills(GIS) and Kraft(KFT), snack-food makers have easier access to a lucrative new market spawned by the natural-food craze. Smaller companies like Food Should Taste Good and Garden of Eatin' have been gaining steam by selling high-quality snack foods with a gigantic price tag, thanks to the "natural, therefore, good for you and worth the extra cost" banner.

While Lay's and Doritos sell 11-ounce bags for a few dollars, organic snacks can cost nearly twice as much for a bag with half as many chips. For smaller companies, those economics may be necessary to cover costs that come with making the product. However, for a massive company like Pepsi, with all of its processes already in place and supported by traditional products, new items can simply be added on and supercharge profits.