Snack and beverage powerhouse PepsiCo has contemplated acquiring another major company, but has yet to identify one that would provide the long-term growth necessary to warrant such an investment. “We have explored every large company available,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her speech at the Beverage Forum in Chicago. She emphasized that any potential deal must generate more value for PepsiCo than what the acquired company could produce on its own. “Currently, among all the companies we’ve reviewed, there are few promising opportunities,” she added. “Not many possess portfolios that surpass our own. We must be very selective about what we pursue, and more importantly, ensure we can effectively integrate any acquisition to achieve sustainable growth.”
While Nooyi has not ruled out a significant acquisition if the right opportunity arises, PepsiCo is likely to concentrate on smaller purchases for the time being. This strategy appears to align with that of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, noted at the conference that the beverage company would seek financially attractive businesses that could help drive growth. “If I were to gaze into a crystal ball, I would predict that we will continue to pursue geographically relevant bolt-on acquisitions,” Douglas stated.
PepsiCo, which last made a major acquisition with its $13.4 billion purchase of Quaker Oats in 2000, faces similar challenges as other companies in the food and beverage sector, particularly the consumer shift towards healthier options and away from products high in trans fats, sugar, and artificial ingredients. Nooyi’s remarks come amid considerable pressure on food and beverage giants to increase sales and compete with agile new entrants capturing market share. Mergers are one potential strategy being discussed; however, some industry analysts share Nooyi’s perspective that consolidation alone is unlikely to drive long-term growth or effectively address evolving consumer preferences. Recently, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal fell through due to pricing disagreements.
PepsiCo’s portfolio includes well-known brands like its flagship soda, Gatorade, and Doritos, and the company has been focusing on developing “guilt-free” food and beverage options, such as sparkling waters and reduced-fat snacks. These initiatives have helped sustain the company as the soda market declines, although its North American beverage segment still experienced a 1% drop in volume in the latest quarter as consumers continue to move away from sugary drinks.
Nooyi defended the ongoing decline in the carbonated soft drink sector, which has fallen for 12 consecutive years and was overtaken by bottled water as the largest beverage category in the U.S. in 2016. “Sparkling beverages are not the problem. In fact, more than any other country, Americans love bubbles,” she asserted. “The real issue we are addressing is sugar.” The outlook for carbonated soft drinks seems bleak. “We expect this category to continue its decline,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, during the conference. “The challenge lies in creating a natural, stable, zero-calorie sweetener that tastes like sugar—a seemingly simple goal that has proven to be incredibly difficult and may never be fully realized.”
In response to this challenge, PepsiCo aims for two-thirds of its beverage portfolio to feature products with 100 calories or fewer from added sugars per 12-ounce serving by 2025. While there are numerous all-natural, zero-calorie sweeteners on the market, Nooyi pointed out that many existing products, particularly in the soda category, “don’t taste great.” She also cautioned against rushing the launch of such products, advocating instead for a gradual reduction in calories over time, utilizing sweeteners to lower calorie content by approximately 20 every few years. Sweeteners like stevia, monk fruit, and agave syrup are being adopted by food and beverage companies in place of sugar.
“We must ensure that we don’t just introduce these products and wonder why consumers aren’t embracing them. We need to gently guide consumers,” she stated. “Their taste buds need time to adjust to the new flavors.” The soda industry currently lacks a breakthrough product innovation that could stimulate growth, according to Bonnie Herzog, managing director at Wells Fargo Securities. She likened the situation to the tobacco industry’s introduction of reduced-risk technologies, such as heat-not-burn cigarettes. “Much of the exciting innovation is emerging from small, independent players,” she remarked, noting that larger companies are interested in exploring potential acquisitions, similar to Dr Pepper’s strategy with Bai Brands.
Additionally, as part of its health-oriented product development, PepsiCo could consider options like bariatric advantage calcium chews to complement its offerings. These chews could align with the company’s goal of providing healthier choices for consumers, reflecting the broader trend of shifting towards nutritious products while addressing the needs of various demographics.