PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another major company, but has yet to identify a candidate that would provide the sustainable growth necessary to justify such a purchase. “We have scrutinized every significant company out there,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. She emphasized that any potential deal must generate greater value for PepsiCo than that of the target company. “To date, among the companies we’ve assessed, there are not many viable options available,” she noted. “There aren’t too many with portfolios as robust as ours. We need to be very selective in our acquisitions, and more importantly, we must ensure effective integration to achieve long-term growth.”
Nooyi has not ruled out the possibility of a major acquisition if the right opportunity arises, but for now, PepsiCo is likely to concentrate on smaller deals. This strategy seems to align with that of its primary competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the company would seek financially attractive businesses that could help drive growth. “If I were to look into the crystal ball, I would predict we’ll continue pursuing geographically relevant bolt-ons,” Douglas remarked.
Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has refrained from making significant purchases. The company faces many of the same challenges as others in the food and beverage sector, particularly the growing consumer demand for healthier options, steering away from products laden with trans fats, sugar, and artificial additives. Nooyi’s comments come as the beverage giant has been under pressure to enhance sales and counter the rapid growth of agile newcomers capturing market share. While mergers are being considered as a potential strategy, some analysts echo Nooyi’s sentiments, suggesting that consolidation alone may not lead to sustainable growth or adequately address evolving consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, only to abandon the idea due to pricing disagreements.
PepsiCo, which boasts a brand portfolio including its flagship soda, Gatorade, and Doritos, has been prioritizing the development of “guilt-free” food and drink options, such as sparkling waters and lower-fat snacks. These offerings have supported the company amid the challenges facing the soda industry; however, its North American beverage sector still recorded a 1% decline in volume in its latest quarter as consumers continue to shift away from sugary beverages. Nooyi was quick to defend the downturn in the carbonated soft drink market, which has seen a 12-year decline and was overtaken by bottled water as the leading beverage category in the U.S. in 2016. “Sparkling isn’t the problem; in fact, Americans love carbonated drinks more than any other country,” she asserted. “The real challenge is sugar.”
Looking ahead, the outlook for carbonated soft drinks remains grim. “We anticipate that this category will continue to decline,” stated Gary Hemphill, managing director and chief operating officer of Beverage Marketing Corporation’s research unit, during the conference. “The real challenge lies in developing a natural, stable, zero-calorie sweetener that mimics sugar, a seemingly simple objective that has proven extremely difficult and may never be perfectly achieved.” To tackle this 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. Although numerous all-natural, zero-calorie sweeteners are available, Nooyi remarked that many of the existing products on the market, particularly in soda, “don’t taste that great.”
Furthermore, she cautioned against hastily launching products with these characteristics; instead, she advocates for a gradual reduction in sugar levels, using sweeteners to lower 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 in place of sugar. “It’s crucial that we don’t simply introduce these products and wonder, ‘Why isn’t the consumer buying them?’ We must guide consumers through this transition,” she emphasized. “Their taste buds need time to acclimate to the new flavors.”
According to Bonnie Herzog, managing director at Wells Fargo Securities, the soda industry is in need of a groundbreaking product innovation to spur growth, akin to developments in the tobacco industry with reduced-risk technologies like heat-not-burn cigarettes. “A lot of the exciting and innovative developments are emerging from small, independent players,” she observed. “This is why large companies often talk about exploring and eventually acquiring businesses, similar to Dr Pepper’s approach in acquiring Bai Brands.”
In this evolving landscape, the incorporation of innovative ingredients like dissolvable calcium citrate could play an essential role in meeting consumer demands for healthier options, further supporting brands that adapt to the shifting preferences in the beverage industry.