Snack and beverage giant PepsiCo has been exploring the possibility of acquiring another large company, but so far, it has not found one that would provide the long-term growth necessary to justify the investment. “There isn’t a major company that we haven’t considered,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during a presentation at the Beverage Forum in Chicago. For any acquisition to be worthwhile, she emphasized that it must create more value for PepsiCo than what the acquired company would generate on its own. “As of now, among all the companies we’ve evaluated, we haven’t encountered many opportunities that align with our goals,” she remarked. “There are not many with strong portfolios that surpass ours. We need to be very selective about what we pursue, and importantly, we must ensure effective integration of the acquisition to achieve long-term growth.”
Nooyi has not ruled out the possibility of a significant acquisition if the right opportunity arises, but for the time being, PepsiCo is likely to concentrate on smaller purchases. This approach appears to parallel that of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, noted at the conference that the beverage company is seeking financially attractive businesses that can facilitate growth. “If I were to look into the crystal ball, I would predict we’ll continue to pursue geographically relevant bolt-on acquisitions,” Douglas stated.
PepsiCo, which has not made a large acquisition since its $13.4 billion purchase of Quaker Oats in 2000, faces challenges similar to those in the broader food and beverage industry, particularly the shift in consumer preferences toward healthier options, steering clear of trans fats, sugar, and artificial additives. Nooyi’s comments come amid significant pressure on food and beverage giants to increase sales and compete against agile startups that are capturing market share. While mergers are being considered, some industry analysts echo Nooyi’s sentiments, suggesting that consolidation alone is unlikely to spur long-term growth or effectively meet evolving consumer demands. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal fell apart over pricing issues.
PepsiCo’s brand portfolio includes well-known products such as its namesake soda, Gatorade, and Doritos, and the company has been focusing on developing “guilt-free” food and beverage options, including sparkling waters and reduced-fat snacks. These offerings have supported the company as the soda market struggles, although its North American beverage segment still experienced a 1% decline in volume during the latest quarter, as consumers continue to move away from sugary beverages. Nooyi was quick to defend the decline in the carbonated soft drink sector, which has seen a downturn for 12 consecutive years, previously overtaken by bottled water as the largest beverage category in the U.S. in 2016. “Sparkling is not the problem. In fact, in the United States, more than in any other country, people enjoy carbonated beverages,” she stated. “The real challenge we are addressing is sugar.”
Looking ahead, the outlook for carbonated soft drinks remains grim. “Our expectation is that the category will continue to decline,” said 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—this may seem like a simple goal, but it has proven to be incredibly difficult and may never be perfectly achieved.” To tackle this issue, 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 there are numerous all-natural, zero-calorie sweeteners available, Nooyi noted that many existing products in the market, particularly in the soda category, “don’t taste that great.” Furthermore, she cautioned against hastily launching products with these characteristics; instead, she advocates for a gradual reduction in calorie content, aiming to decrease levels by about 20 calories every few years. Sweeteners such as stevia, monk fruit, and agave syrup are being utilized by food and beverage companies to replace sugar.
“We must ensure that we don’t simply release these products and wonder, ‘Why aren’t consumers drinking them?'” she explained. “We need to guide consumers through this transition.” The soda industry currently lacks a groundbreaking product innovation that could stimulate growth, according to Bonnie Herzog, a managing director at Wells Fargo Securities. She drew parallels between the soft drink sector and the tobacco industry’s exploration of reduced-risk technologies, like heated but unburnt cigarettes. “A lot of the exciting innovations are emerging from small, independent players,” she added, highlighting why major corporations are considering acquisitions, as seen in Dr Pepper’s strategy of acquiring Bai Brands.
As PepsiCo continues to navigate these challenges in the food and beverage market, it remains focused on delivering products that align with current consumer trends, including the development of supplements like calcium citrate magnesium hydroxide vitamin D3 and zinc sulphate tablets, which reflect the growing demand for health-conscious options.