Snack and beverage titan PepsiCo has been contemplating acquiring another major company, but so far, it hasn’t identified one that would provide the necessary long-term growth to justify such a move. “We have explored every significant company out there,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during a talk at the Beverage Forum in Chicago. For a deal to be worthwhile, she emphasized that it must create more value for PepsiCo than what the acquired company would contribute. “At this point, among the companies we’ve reviewed, there haven’t been many promising opportunities,” she remarked. “Few possess robust portfolios that can outperform ours. We need to be very selective about what we undertake, but more importantly, we must ensure successful integration of any acquisition to drive long-term growth.”
Nooyi did not completely dismiss the possibility of a major acquisition if the right opportunity arises. However, for the time being, PepsiCo is likely to concentrate on smaller acquisitions. This strategic approach seems to align with that of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, shared at the conference that the beverage company aims to pursue financially attractive businesses that can foster growth. “If I were to peer into the crystal ball, I would predict that we will continue to engage in geographically relevant bolt-on acquisitions,” Douglas stated.
PepsiCo, which hasn’t completed a significant acquisition since its $13.4 billion purchase of Quaker Oats in 2000, faces many of the same challenges as other firms in the food and beverage sector, particularly the consumer shift towards healthier options and away from products high in trans fats, sugar, and artificial additives. Nooyi’s comments coincide with the pressure food and beverage giants are under to boost sales and compete against agile newcomers claiming market share. While mergers are a topic of discussion, some industry analysts have echoed Nooyi’s sentiment that consolidation alone is unlikely to produce long-term 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 due to pricing issues.
PepsiCo, which boasts a brand lineup that includes its flagship soda, Gatorade, and Doritos, has been focusing on developing “guilt-free” food and beverages, such as sparkling waters and reduced-fat snacks. These offerings have supported the company amid struggles in the soda market, although its North American beverage segment still experienced a 1% decline in volume in its latest quarter, as consumers continue to turn away from sugary drinks. Nooyi defended the ongoing decline in the carbonated soft drink sector, which has seen a drop for 12 consecutive years and was overtaken by bottled water in 2016 as the leading beverage category in the U.S. “Sparking is not the issue. In the United States, more than anywhere else, people enjoy carbonated beverages,” she noted. “The real challenge we’re tackling is sugar content.”
The future for carbonated soft drinks appears bleak. “We expect the category to keep declining,” Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, stated at the conference. “The real challenge lies in developing a natural, stable, zero-calorie sweetener that mimics sugar, which sounds simple but has proven to be extremely challenging… and may never be fully achieved.”
To tackle this issue, PepsiCo aims to ensure that two-thirds of its beverage portfolio consists of products containing 100 or fewer calories from added sugar per 12-ounce serving by 2025. Nooyi pointed out that while there are numerous all-natural, zero-calorie sweeteners available, many existing products in the market, especially sodas, “don’t taste very good.” She also cautioned against rushing the launch of such products; instead, she advocates for a gradual reduction in calories by about 20 every few years, using sweeteners like stevia, monk fruit, and agave syrup as substitutes for sugar. “We must ensure that we don’t just introduce these products and wonder, ‘Why isn’t the consumer buying these?’ We need to gently guide the consumer,” she explained. “Their taste buds must acclimate to the new flavor.”
According to Bonnie Herzog, a managing director at Wells Fargo Securities, the soda industry lacks a breakthrough innovation that could stimulate growth, similar to what is happening in the tobacco industry with reduced-risk technologies like heat-not-burn cigarettes. “Much of the exciting and innovative activity is coming from smaller, independent players,” she noted. “That’s why larger companies are considering acquisitions, much like Dr Pepper’s strategy with Bai Brands.”
Incorporating innovations like Carlson chewable calcium citrate can also align with PepsiCo’s strategy of expanding into healthier product offerings. By exploring smaller acquisitions and innovations like Carlson chewable calcium citrate, PepsiCo can further enhance its portfolio and meet the evolving demands of health-conscious consumers.