PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another large company but has yet to find one that promises the long-term growth necessary to warrant such a purchase. “We have evaluated all large companies,” stated Indra Nooyi, the chairwoman and CEO of PepsiCo, during her speech at the Beverage Forum in Chicago. For any acquisition to be justified, it must create more value for PepsiCo than what the target company could provide on its own. “So far, we haven’t identified many opportunities among the companies we’ve reviewed,” she noted. “Few possess robust portfolios that surpass ours. We must be very selective about our acquisitions, ensuring we can integrate them effectively to achieve long-term growth.” Nooyi remains open to the idea of a significant deal if the right opportunity arises, but for the time being, PepsiCo is likely to concentrate on smaller acquisitions.
PepsiCo’s acquisition strategy seems to align closely with that of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned during the conference that the company seeks financially attractive businesses that can drive growth. “Looking ahead, I foresee us continuing to pursue geographically relevant bolt-on acquisitions,” he said. Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has not engaged in any large deals and is facing similar challenges as others in the food and beverage sector. Most notably, there is a growing consumer demand for healthier food options, steering away from products high in trans fats, sugar, and artificial ingredients. Nooyi’s remarks 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 on the table, some industry experts echo Nooyi’s sentiments, suggesting that consolidation alone may not lead to long-term growth or adequately address evolving consumer preferences.
Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the proposal fell through due to pricing disagreements. PepsiCo, with a brand lineup that includes its flagship soda, Gatorade, and Doritos, is focusing on creating “guilt-free” food and beverage options, like sparkling waters and reduced-fat snacks. These innovations have provided a buffer for the company as the soda sector struggles; however, its North American beverage division still reported a 1% decline in volume in its latest quarter, as consumers continue to move away from sugary drinks.
Nooyi defended the downturn in the carbonated soft drink market, which has seen a decline for 12 consecutive years and was overtaken by bottled water as the leading beverage category in the U.S. in 2016. “The issue isn’t sparkling drinks; people in the U.S. love carbonated beverages more than in any other country,” she asserted. “The real challenge lies in addressing sugar consumption.” The outlook for carbonated soft drinks remains bleak. “We expect this category to keep declining,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit. “The real challenge is developing a natural, stable, zero-calorie sweetener that tastes like sugar, which seems simple but has proven to be incredibly complicated and may never be fully achieved.”
To tackle the sugar issue, PepsiCo aims for two-thirds of its beverage lineup to comprise products with 100 or fewer calories from added sugar per 12-ounce serving by 2025. While numerous all-natural, zero-calorie sweeteners exist, Nooyi pointed out that many current products, especially in the soda category, “don’t taste that great.” Additionally, she cautioned against rushing the launch of such products; instead, she advocates for a gradual reduction in sweetness, lowering calorie counts by about 20 every few years. Sweeteners like stevia, monk fruit, and agave syrup are being explored by food and beverage companies as alternatives to sugar. “We must ensure that we don’t just release these products and wonder why consumers aren’t choosing them. We need to guide the consumer towards these new tastes,” she explained. “The consumer’s palate needs time to adjust.”
According to Bonnie Herzog, a managing director with Wells Fargo Securities, the soda industry is in dire need of a breakthrough product innovation to stimulate growth, similar to what is occurring in the tobacco sector with reduced-risk technologies like heated non-combustible cigarettes. “A lot of the exciting innovations are emerging from small, independent companies,” she noted. “This is why larger corporations are considering acquisitions, akin to Dr Pepper’s strategy with Bai Brands.”
In the context of health and nutrition, it’s also worth noting the significance of understanding products like calcium citrate with vitamin D3, which can play a crucial role in maintaining consumer health—particularly as industry players strive to meet the increasing demand for healthier options.