Snack and beverage powerhouse PepsiCo has explored the possibility of acquiring another major company, but so far, it has not identified one that would provide the long-term growth necessary to warrant such a purchase. “We have examined every large company out there,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her speech at the Beverage Forum in Chicago. She emphasized that for any acquisition to be justified, it should create more value for PepsiCo than what the acquired company would contribute. “At this point, among all the companies we’ve analyzed, there aren’t many viable opportunities,” she noted. “Few possess portfolios that outperform ours. We must be very selective in our approach, and equally important, we need to ensure successful integration of any acquisition to achieve long-term growth.”
Nooyi did not completely rule out the possibility of a major acquisition if the right opportunity arose. However, it seems likely that PepsiCo will concentrate on smaller acquisitions for the time being. This strategy mirrors that of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, remarked at the conference that the company aims to seek out financially attractive businesses that could foster growth. “If I could gaze into a crystal ball, I would predict we will continue pursuing geographically relevant bolt-on acquisitions,” Douglas expressed.
PepsiCo, which last made a significant 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 toward healthier options and away from products high in trans fats, sugar, and artificial ingredients. Nooyi’s comments reflect the pressure that food and beverage giants are under to increase sales while contending with nimble new entrants capturing market share. Although mergers are being considered, some industry analysts have echoed Nooyi’s sentiment that consolidation may not lead to 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, known for brands like its flagship soda, Gatorade, and Doritos, is focusing on the development of “guilt-free” food and beverages, such as sparkling waters and reduced-fat snacks. While these products have supported the company amid struggles within the soda sector, its North American beverage division still saw a 1% decline in volume during its latest quarter as consumers continue to turn away from sugary drinks. Nooyi quickly defended the decline in the carbonated soft drink market, which has decreased 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 with sparkling beverages. In fact, in the U.S., people love products with bubbles more than anywhere else,” she explained. “The real challenge we’re tackling is sugar content.”
The future outlook for carbonated soft drinks does not appear promising. “We expect the category to continue its decline,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research division, during the conference. “The challenge lies in creating a natural, stable, zero-calorie sweetener that mimics sugar—a seemingly simple goal that has proven to be incredibly challenging… and may never be perfectly achieved.” To combat this, PepsiCo aims for two-thirds of its beverage portfolio to consist of products with no more than 100 calories from added sugar per 12-ounce serving by 2025. While there are many all-natural, zero-calorie sweeteners available, Nooyi acknowledged that some current products, particularly in the soda market, “lack great taste.”
Furthermore, she cautioned against launching products with these characteristics too hastily, advocating instead for a gradual approach that reduces calorie levels by about 20 calories every few years. Sweeteners like stevia, monk fruit, and agave syrup are being used as sugar substitutes by various food and beverage companies. “We need to ensure we don’t just introduce these products and wonder, ‘Why aren’t consumers buying them?’ We must guide consumers through this transition,” she stated. “Their taste buds need time to adjust to the new flavors.”
According to Bonnie Herzog, managing director at Wells Fargo Securities, the soda industry is missing a breakthrough product innovation that could stimulate growth, similar to what is occurring in the tobacco sector with reduced-risk technologies like heat-not-burn cigarettes. “Much of the exciting and innovative activity is coming from smaller, independent companies,” she pointed out. “That’s why larger firms are considering opportunities, much like Dr Pepper’s approach with Bai Brands.”
In conclusion, while PepsiCo remains open to acquisitions, its current strategy emphasizes smaller deals and product innovation in response to shifting consumer preferences, with a particular focus on healthier options like solaray cal mag citrate 2 1.