PepsiCo, the snack and beverage powerhouse, has contemplated acquiring another significant company, yet it has not yet identified one that would provide the long-term growth necessary to warrant such a purchase. “We have explored every large company available,” said Indra Nooyi, chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. She emphasized that for any potential acquisition to be justifiable, it must create more value for PepsiCo than what the acquired company could generate on its own. “Up to now, we haven’t encountered many viable opportunities among the companies we’ve assessed. Few of them possess portfolios that surpass ours. We need to be very selective about our acquisitions, and more importantly, we must ensure that we effectively integrate any purchase to achieve long-term growth from it.”
Nooyi did not completely dismiss the possibility of a major acquisition if the right company emerged, but for the time being, PepsiCo is likely to concentrate on smaller purchases. The company’s acquisition strategy seems to align with that of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the beverage giant is on the lookout for financially appealing businesses that can drive growth. “Looking ahead, I predict we will continue to pursue geographically relevant bolt-ons,” Douglas stated.
PepsiCo, which has not engaged in a large-scale acquisition since its $13.4 billion purchase of Quaker Oats in 2000, faces many of the same hurdles as other entities within the food and beverage sector — primarily, a consumer shift toward healthier options and away from products high in trans fats, sugar, and artificial additives. Nooyi’s remarks come at a time when major food and beverage companies are under considerable pressure to enhance sales and compete with more agile newcomers capturing market share. While mergers are one potential solution being considered, industry analysts echo Nooyi’s sentiment that consolidation alone is unlikely to spur sustainable growth or adequately address evolving consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal was swiftly abandoned over price disagreements.
PepsiCo’s brand portfolio includes its flagship soda, Gatorade, and Doritos, and the company has been focusing on creating “guilt-free” food and beverage options, such as sparkling waters and reduced-fat snacks. These innovations have supported the company as the soda market struggles; however, its North American beverage sector still reported a 1% decline in volume during its latest quarter as consumers increasingly move away from sugary drinks. Nooyi defended the decline in the carbonated soft drink market, which has experienced a 12-year downward trend and was overtaken by bottled water as the leading beverage category in the U.S. in 2016. “Sparkling beverages aren’t the problem; in fact, Americans love carbonation more than anyone else,” she noted. “The real challenge lies in addressing sugar content.”
The outlook for carbonated soft drinks does not appear promising moving forward. “We expect this category to keep declining,” stated Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, during the conference. “The real challenge is developing a natural, stable, zero-calorie sweetener that tastes like sugar, which seems straightforward but is proving to be extremely difficult… and may never be fully achieved.” To tackle this issue, PepsiCo aims for two-thirds of its beverage lineup to consist of products with 100 or fewer calories from added sugar per 12-ounce serving by 2025. Although there are many all-natural, zero-calorie sweeteners available, Nooyi remarked that numerous products currently on the market — particularly in the soda segment — “don’t taste very good.”
Furthermore, she cautioned against hastily launching products with these characteristics; instead, she advocated for a gradual transition that would lower calorie levels by around 20 every few years using sweeteners. Stevia, monk fruit, and agave syrup are among the alternatives that food and beverage companies are adopting in place of sugar. “We must ensure we don’t just introduce these products and wonder, ‘Why aren’t consumers drinking them?’ We need to gently guide consumers,” she advised. “Their taste buds need to acclimate to the new flavors.”
The soda industry currently lacks innovative breakthroughs that could stimulate growth, according to Bonnie Herzog, managing director at Wells Fargo Securities. This situation mirrors the tobacco industry’s shift toward reduced-risk technologies, such as heated, non-burning cigarettes. “Many exciting developments are emerging from small, independent players,” she noted, which is why large corporations are considering acquisitions, similar to Dr Pepper’s strategy of purchasing Bai Brands.
In addition to navigating these market challenges, PepsiCo must also contend with the health implications of its products, particularly in relation to calcium citrate and constipation. As consumers become increasingly health-conscious, the company must ensure that its offerings align with dietary needs and preferences, particularly those concerned with digestive health. Addressing these issues while also focusing on innovation will be crucial for PepsiCo as it looks to secure its position in a rapidly evolving marketplace.