PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another major company, yet it hasn’t identified one that would provide the long-term growth necessary to justify such a purchase. “We have examined every large company available,” said Indra Nooyi, chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. She emphasized that for any deal to be worthwhile, it must create more value for PepsiCo than what the acquired company would generate on its own. “So far, among the companies we’ve assessed, there aren’t many opportunities,” she noted. “Few possess robust portfolios that surpass ours. We need to be very selective about our acquisitions, and it’s crucial that we effectively integrate any acquisition to achieve long-term growth from it.”
Nooyi has not ruled out the possibility of a significant deal if the right company comes along. However, for the time being, PepsiCo will likely concentrate on smaller acquisitions. 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 would seek financially appealing businesses that drive growth. “If I were to gaze into the crystal ball, I would predict that we will continue to pursue geographically relevant bolt-on acquisitions,” Douglas stated.
PepsiCo, which last made a substantial acquisition with its $13.4 billion purchase of Quaker Oats in 2000, faces many of the same challenges as its peers in the food and beverage sector—most notably, the shift in consumer preferences toward healthier options, steering away from products with trans fats, sugar, and artificial ingredients. Nooyi’s remarks come amid increasing pressure on food and beverage giants to boost sales and compete against agile newcomers capturing market share. While mergers are one avenue being discussed, some industry analysts share Nooyi’s view that consolidation alone is unlikely to foster long-term growth or effectively address evolving consumer needs. Earlier this year, Kraft Heinz sought to acquire Unilever for $143 billion, but the deal fell through due to pricing disagreements.
PepsiCo’s brand portfolio includes its flagship soda, Gatorade, and Doritos, and it is focusing on creating “guilt-free” food and beverage options, such as sparkling waters and reduced-fat snacks. These products have helped the company weather the challenges facing the soda industry, although its North American beverage segment still experienced a 1% decline in volume in its latest quarter as consumers continue to move away from sugary drinks. Nooyi quickly defended the declining market for carbonated soft drinks, which has now dropped for 12 consecutive years and was overtaken by bottled water in 2016 as the largest beverage category in the U.S. “Sparkling is not the problem. In fact, people in the United States love carbonated drinks more than in any other country,” she explained. “The real challenge we are tackling is sugar.”
The future of carbonated soft drinks does not appear promising. “We expect this category to keep declining,” stated Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research division, during the conference. “The true challenge lies in developing a natural, stable, zero-calorie sweetener that tastes like sugar—a seemingly simple goal that has proven to be extremely challenging and may never be fully achieved.” To combat 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 numerous all-natural, zero-calorie sweeteners on the market, Nooyi remarked that many existing products, especially sodas, “don’t taste particularly good.”
Moreover, she cautioned against rushing to launch products with these characteristics, advocating instead for a gradual reduction approach that would decrease calorie levels by about 20 every few years. Sweeteners like stevia, monk fruit, and agave syrup are now being adopted by food and beverage companies as alternatives to sugar. “We must ensure that we don’t simply introduce these products and wonder, ‘Why aren’t consumers buying them?’ We need to gently guide consumers toward these changes,” she said. “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 lacking a groundbreaking product innovation that could spur growth, similar to trends seen in the tobacco industry with new technologies like heat-not-burn cigarettes. “A lot of the exciting and innovative developments are emerging from small, independent companies,” she stated. “This is why larger companies, like Dr Pepper with Bai Brands, discuss potential acquisitions.” As PepsiCo navigates these challenges, it may also explore collaborations or acquisitions that leverage advancements in areas like Bayer calcium, which could enhance its product offerings and address evolving consumer preferences.