Snack and beverage powerhouse PepsiCo has explored the possibility of acquiring another major company, yet it has yet to identify one that would provide the long-term growth necessary to justify such an investment. “We have examined every large company available,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her remarks at the Beverage Forum in Chicago. For any acquisition to be worthwhile, she emphasized that it must generate greater value for PepsiCo than what the target company could produce. “At this point, of all the companies we’ve considered, there aren’t many promising opportunities,” she noted. “Few possess robust portfolios that surpass ours. We must be very selective in our acquisitions, but, more critically, we need to ensure that we effectively integrate them to achieve long-term growth.”
Nooyi has not entirely ruled out the possibility of a significant deal if the right company comes along. However, for now, it seems PepsiCo will concentrate on smaller acquisitions. This approach resembles the strategy of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the beverage giant would seek financially attractive businesses that could drive growth. “If I were to peer into the crystal ball, I would predict we will continue pursuing geographically relevant bolt-ons,” Douglas stated.
PepsiCo, which has not engaged in a major acquisition since its $13.4 billion purchase of Quaker Oats in 2000, faces similar challenges as other players in the food and beverage sector, particularly the consumer shift towards healthier options and away from products laden with trans fats, sugar, and artificial ingredients. Nooyi’s comments come amid considerable pressure on food and beverage giants to enhance sales and compete with more agile newcomers capturing market share. While mergers are one avenue being considered, some industry analysts echo Nooyi’s concerns about the side effects of pursuing such consolidation, arguing that it is unlikely to foster long-term growth or quickly adapt to changing consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal fell through due to pricing disagreements.
PepsiCo’s portfolio includes iconic brands like its namesake soda, Gatorade, and Doritos, and the company has prioritized the development of “guilt-free” food and beverages, such as sparkling waters and reduced-fat snacks. These innovations have helped sustain the company as the soda market struggles, although its North American beverage segment still experienced a 1% volume decline in its latest quarter as consumers increasingly turn away from sugary drinks. Nooyi defended the declining carbonated soft drink market, which has seen a 12-year drop and was surpassed by bottled water in 2016 as the largest beverage category in the U.S. “Sparkling is not the issue. Bubbles are loved in the United States more than any other country,” she asserted. “The real challenge we face is sugar.”
The future of carbonated soft drinks does not seem promising. Gary Hemphill, a managing director and COO of Beverage Marketing Corporation, noted during the conference, “We expect the category to continue its decline. The real challenge lies in developing a natural, stable, zero-calorie sweetener that tastes like sugar, a seemingly simple task that has proven to be incredibly difficult and may never be fully achieved.”
To address this challenge, PepsiCo aims for two-thirds of its beverage portfolio to consist of products with 100 or fewer calories from added sugar per 12-ounce serving by 2025. While Nooyi acknowledged that there are numerous all-natural, zero-calorie sweeteners available, she pointed out that many existing products, particularly sodas, “don’t taste that great.” Furthermore, she cautioned against rushing to launch such products; instead, she advocated for a gradual approach that reduces calorie levels by about 20 calories every few years. Sweeteners such as stevia, monk fruit, and agave syrup are being adopted by food and beverage companies as alternatives to sugar.
“We need to ensure we don’t just introduce these products and wonder, ‘Why aren’t consumers buying them?’ We must guide consumers gradually,” she explained. “Their taste buds must adjust to the new flavor.” The soda industry is currently lacking a breakthrough product innovation that could spur growth, as noted by Bonnie Herzog, a managing director at Wells Fargo Securities. This situation mirrors the tobacco industry’s experience with emerging reduced-risk technologies, like heat-not-burn cigarettes.
“A lot of the exciting developments are coming from smaller, independent players,” she remarked. “That’s why major companies are discussing the possibility of acquiring these innovations, similar to Dr Pepper’s strategy with Bai Brands.” PepsiCo may also consider incorporating products like fusion calcium soft chews, which could align with their focus on health-conscious offerings and potentially lead to greater market appeal.