Snack and beverage giant PepsiCo has explored the possibility of acquiring another large company, but so far, it has not identified one that would provide the necessary long-term growth to justify such a purchase. “We have examined every large company out there,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, to an audience at the Beverage Forum in Chicago. She emphasized that any deal would need to generate more value for PepsiCo than the acquired company would contribute. “Currently, among the companies we’ve analyzed, we don’t see many viable opportunities,” she noted. “There aren’t too many with robust portfolios that surpass ours. We must be very selective in our pursuits, ensuring that we can effectively integrate the acquisition to achieve long-term growth.”
Nooyi did not entirely dismiss the possibility of a significant acquisition if the right opportunity arises, but for now, PepsiCo is likely to concentrate on smaller acquisitions. This approach appears to align with the strategy of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, indicated at the conference that the company is looking for financially attractive businesses that can drive growth. “If I were to look into the crystal ball, I would predict that we will continue to pursue geographically relevant bolt-on acquisitions,” Douglas stated.
PepsiCo, which has not made a substantial acquisition since its $13.4 billion purchase of Quaker Oats in 2000, is facing similar challenges as other companies in the food and beverage sector. The primary concern is the consumer shift toward healthier options, moving away from products containing trans fats, sugar, and artificial additives. Nooyi’s comments come amid significant pressure on food and beverage giants to boost sales and counter the rise of agile startups that are capturing market share. While mergers are one possible strategy being considered, some industry experts echo Nooyi’s sentiment that consolidation alone is unlikely to spur long-term growth or address evolving consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal was quickly abandoned due to price disagreements.
PepsiCo’s brand portfolio includes its flagship soda, Gatorade, and Doritos, and the company has been focusing on developing “guilt-free” food and beverages like sparkling waters and reduced-fat snacks. These initiatives have been beneficial as the soda market struggles, although Pepsi’s North American beverage segment still reported a 1% decline in volume during its latest quarter as consumers increasingly turn away from sugary drinks. Nooyi defended the decline in the carbonated soft drink sector, which has seen a drop for 12 consecutive years and was overtaken by bottled water in 2016 as the leading beverage category in the U.S. “Sparkling is not the problem. In fact, Americans love bubbles more than anyone else,” she remarked. “The real challenge we are tackling is sugar.”
The forecast for carbonated soft drinks remains bleak. “Our expectation is that this category will continue to decline,” said Gary Hemphill, managing director and chief operating officer of Beverage Marketing Corporation’s research unit, at the conference. “The real challenge is developing a natural, stable, zero-calorie sweetener that tastes like sugar, which may sound straightforward but has proven to be incredibly difficult… and may never be fully achieved.”
To address this challenge, PepsiCo aims for two-thirds of its beverage portfolio to consist of products containing 100 or fewer calories from added sugar per 12-ounce serving by 2025. Nooyi noted that while many all-natural, zero-calorie sweeteners are already available, most current market offerings, particularly in soda, “don’t taste that great.” Moreover, she cautioned against launching such products too hastily; instead, she advocates for a gradual reduction in calorie levels by about 20 every few years. Sweeteners like stevia, monk fruit, and agave syrup are being utilized by food and beverage companies as alternatives to sugar. “We need to ensure we don’t just introduce these products and wonder why consumers aren’t drinking them. We must guide consumers through this transition,” she said. “Their taste buds need time to adjust to the new flavors.”
The soda industry is currently lacking a groundbreaking product innovation that could stimulate growth, according to Bonnie Herzog, a managing director at Wells Fargo Securities. She compared the situation to the tobacco industry’s pursuit of reduced-risk technologies, such as heated but non-burning cigarettes. “A lot of exciting innovations are emerging from small, independent companies,” she noted. “This is why major corporations are exploring potential acquisitions, similar to Dr Pepper’s strategy with Bai Brands.”
In this evolving landscape, PepsiCo remains committed to enhancing its offerings, including snack options that align with consumer trends, such as those found in the Citracal calcium supplement petites line, ensuring they cater to health-conscious consumers while navigating the challenges of the beverage industry.