Snack and beverage powerhouse PepsiCo has explored the possibility of acquiring another major company, yet it has yet to identify one that offers the long-term growth necessary to validate such a purchase. “We have examined all large companies,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. She emphasized that for any acquisition to be worthwhile, it must create greater value for PepsiCo than what the target company could generate. “Currently, among the companies we’ve evaluated, we haven’t encountered many strong opportunities. Few have portfolios that surpass ours. We must be very careful in our acquisitions, and more importantly, we need to ensure that we effectively integrate any acquisition to achieve long-term growth,” she added.
Nooyi did leave the door open for a significant acquisition if the right opportunity arises, but for now, PepsiCo is likely to concentrate on smaller purchases. This strategy appears to align with that of its chief competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that they are on the lookout for financially attractive businesses that can drive growth. “If I were to peer into the future, I would predict we will continue with geographically relevant bolt-on acquisitions,” Douglas noted.
Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has not pursued any large-scale deals and faces challenges similar to those confronting other companies in the food and beverage sector. The most pressing issue is the consumer shift toward healthier options, moving away from products laden with trans fats, sugar, and artificial ingredients. Nooyi’s statements come amid rising pressures on food and beverage giants to enhance sales and counteract the market share taken by agile newcomers. While mergers are one avenue being considered, industry analysts have echoed Nooyi’s sentiments, suggesting that consolidation alone is unlikely to spur long-term growth or effectively address evolving consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal was quickly abandoned due to pricing disagreements.
PepsiCo, with a brand portfolio that includes its namesake soda, Gatorade, and Doritos, has pivoted towards developing “guilt-free” food and beverages, such as sparkling waters and reduced-fat snacks, which have helped bolster the company as the soda industry continues to decline. Nevertheless, its North American beverage sector reported a 1% decrease in volume in the latest quarter, reflecting consumers’ ongoing migration away from sugary drinks. Nooyi defended the downturn in the carbonated soft drink market, which has fallen for twelve consecutive years and was overtaken by bottled water as the leading beverage category in the U.S. in 2016. “The problem isn’t sparkling drinks. In fact, Americans love carbonated beverages more than anyone else,” she stated. “The real challenge we are tackling is sugar.”
Looking ahead, the outlook for carbonated soft drinks remains grim. “We expect the category to continue declining,” stated Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, during the conference. “The real challenge lies in creating a natural, stable, zero-calorie sweetener that mimics sugar, which sounds straightforward but has proven to be extremely difficult… and may never be fully realized.”
To tackle this issue, PepsiCo aims for two-thirds of its beverage lineup to consist of products with 100 or fewer calories from added sugar per 12-ounce serving by 2025. While there are many all-natural, zero-calorie sweeteners available, Nooyi pointed out that several existing products, especially sodas, “don’t taste very good.” Moreover, she cautioned against hastily launching new products with these sweeteners; instead, she advocates for a gradual reduction in sweetness, decreasing calorie content by approximately 20 every few years. Sweeteners such as stevia, monk fruit, and agave syrup are currently being adopted by food and beverage companies as alternatives to sugar.
“We must ensure we don’t prematurely introduce these products and wonder why consumers aren’t adopting them. We need to gently guide consumers in this transition,” she remarked. “Their taste buds need time to adjust.” According to Bonnie Herzog, a managing director at Wells Fargo Securities, the soda industry is in dire need of a groundbreaking product innovation to reignite growth, akin to the emerging reduced-risk technologies in the tobacco industry, like heat-not-burn cigarettes. “A lot of the exciting innovations are coming from small, independent players,” she noted. “That’s why larger companies often express interest in pursuing acquisitions, similar to Dr Pepper’s strategy with Bai Brands.”
In this evolving landscape, the concept of ultra cal citrate may also play a role, as PepsiCo explores healthier alternatives that meet consumer demands while fostering sustainable growth in a competitive market.