PepsiCo, the snack and beverage powerhouse, has contemplated acquiring another major company. However, it has yet to identify a target that would provide the long-term growth necessary to justify such a purchase. Indra Nooyi, PepsiCo’s chairwoman and CEO, shared with an audience at the Beverage Forum in Chicago, “We have explored every large company available. For any acquisition to be worthwhile, it must generate more value for PepsiCo than what the acquired company offers.” She further remarked, “So far, none of the companies we’ve evaluated present sufficient opportunities. Few possess portfolios that surpass ours. We need to be very selective about our acquisitions and, more importantly, ensure we can integrate them effectively for sustainable growth.” While Nooyi did not entirely rule out a significant deal if the right opportunity arose, PepsiCo is likely to concentrate on smaller acquisitions for the time being.
This approach mirrors the strategy of PepsiCo’s main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, indicated at the conference that the beverage giant aims to acquire financially attractive businesses that can foster growth. “If I were to look into the crystal ball, I would predict we’ll continue pursuing geographically relevant bolt-on acquisitions,” Douglas said.
Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has not engaged in major deals and faces many of the same challenges as others in the food and beverage sector. Most notably, there is a growing consumer demand for healthier options, leading to a shift away from products high in sugar, artificial colors, and flavors. Nooyi’s comments come amid increased pressure on food and beverage leaders to enhance sales and compete against agile newcomers capturing market share. While mergers are being considered, industry experts echo Nooyi’s sentiments, suggesting that consolidation alone is unlikely to yield long-term growth or address evolving consumer preferences.
This year, Kraft Heinz sought to acquire Unilever for $143 billion, but the deal collapsed due to valuation disagreements. PepsiCo, which boasts brands like its flagship soda, Gatorade, and Doritos, has been focusing on “guilt-free” food and beverages, such as sparkling waters and reduced-fat snacks. While these products have supported the company as the soda industry struggles, its North American beverage segment still recorded a 1% volume decline in the most recent quarter as consumers continue to move away from sugary drinks.
Nooyi defended the downturn in the carbonated soft drink market, which has declined for twelve consecutive years and was overtaken by bottled water as the leading beverage category in the U.S. in 2016. “Sparkling beverages are not the issue. In fact, Americans love carbonated drinks more than anyone else,” she stated. “The real challenge we are addressing is sugar.” The future for carbonated soft drinks appears bleak. According to Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, “We expect the category to keep declining. The real challenge is creating a natural, stable, zero-calorie sweetener that tastes like sugar, which is a seemingly straightforward goal but has proven quite complex and may never be fully achieved.”
To combat this issue, PepsiCo aims for two-thirds of its beverage portfolio to consist of products with 100 or fewer calories from added sugar per 12-ounce serving by 2025. While Nooyi acknowledged the existence of various all-natural, zero-calorie sweeteners, she pointed out that many current products—especially sodas—”don’t taste that great.” She cautioned against launching these products too hastily, advocating for a gradual reduction in calorie levels, about 20 calories every few years. Sweeteners like stevia, monk fruit, and agave syrup are being used in place of sugar. “We need to ensure we don’t simply launch these products and wonder why consumers aren’t buying them. We must guide the consumer’s palate,” she emphasized. “The consumer’s taste buds need time to adapt to new flavors.”
According to Bonnie Herzog, managing director at Wells Fargo Securities, the soda industry is lacking a groundbreaking product innovation that could stimulate growth, akin to the reduced-risk technologies emerging in the tobacco sector, such as heat-not-burn cigarettes. “Many exciting developments are coming from smaller, independent players,” she noted. “That is why major companies are keen on acquisitions, similar to Dr Pepper’s strategy with Bai Brands.” Amidst these developments, there is ongoing interest in exploring products like calcium citrate cheese sauce as part of a broader strategy to diversify offerings and appeal to health-conscious consumers.