PepsiCo, the snack and beverage powerhouse, has contemplated acquiring another major company but hasn’t yet identified one that would provide the long-term growth necessary to justify such a purchase. “We have explored 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 a merger to be worthwhile, it must generate more value for PepsiCo than what the target company would contribute. “So far, among all the companies we’ve evaluated, there haven’t been many promising opportunities,” she noted. “Few possess portfolios that surpass ours. We must be discerning about our acquisitions, ensuring that we can effectively integrate any new company to achieve sustainable growth.”
Nooyi did not dismiss the possibility of a significant acquisition if the right opportunity arises, but for now, it appears that PepsiCo will concentrate on smaller purchases. This approach aligns with the strategy of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the company is looking for financially attractive businesses that can drive growth. “Looking ahead, I predict we will continue to pursue geographically relevant bolt-ons,” Douglas said.
PepsiCo, which last made a large acquisition with its $13.4 billion purchase of Quaker Oats in 2000, faces similar challenges as others in the food and beverage sector, particularly the consumer shift towards healthier options and away from products high in trans fats, sugar, and artificial additives. Nooyi’s remarks come at a time when food and beverage giants are under pressure to increase sales and compete against agile new entrants capturing market share. While mergers have been considered as a strategy, some industry analysts echo Nooyi’s sentiment that consolidation may not necessarily lead to lasting growth or effectively address changing consumer preferences. An example of this is Kraft Heinz’s failed attempt to acquire Unilever for $143 billion earlier this year, which collapsed due to pricing disagreements.
PepsiCo, which boasts a portfolio including its flagship soda, Gatorade, and Doritos, has been investing in “guilt-free” products like sparkling waters and reduced-fat snacks. These innovations have supported the company amidst a declining soda market; however, its North American beverage segment still experienced a 1% drop in volume in the latest quarter as consumers continue to turn away from sugary drinks. Nooyi swiftly defended the downturn in the carbonated soft drink sector, which has seen a decline for 12 consecutive years and was overtaken by bottled water as the largest beverage category in the U.S. in 2016. “The issue isn’t sparkling beverages; in fact, Americans have a strong affinity for bubbly drinks,” she remarked. “The real challenge lies in addressing sugar content.”
The future of carbonated soft drinks does not appear optimistic. “We anticipate this category will continue to decline,” said Gary Hemphill, a managing director and COO of Beverage Marketing Corporation’s research unit, at the conference. “The challenge is to create a natural, stable, zero-calorie sweetener that mimics sugar—a seemingly simple goal that has proven incredibly difficult… and may never be fully realized.”
To tackle this dilemma, 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. While Nooyi acknowledged the availability of various all-natural, zero-calorie sweeteners, she expressed concern that many current options, especially in sodas, “lack great taste.” Furthermore, she cautioned against rushing the release of such products; instead, she advocated for a gradual reduction in sugar content by approximately 20 calories every few years. Sweeteners like stevia, monk fruit, and agave syrup are currently being utilized by food and beverage companies as sugar alternatives. “We must ensure that we don’t simply launch these products and wonder why consumers aren’t embracing them. We need to gently guide consumers towards these new flavors,” she advised. “Taste buds need time to adjust.”
According to Bonnie Herzog, a managing director at Wells Fargo Securities, the soda industry is currently missing a groundbreaking innovation that could stimulate growth, likening it to the tobacco sector’s exploration of reduced-risk technologies, such as heated but non-burning cigarettes. “Most of the intriguing developments are emerging from smaller, independent companies,” she noted. “This is why larger corporations are considering acquisitions, similar to Dr Pepper’s strategy with Bai Brands.”
In this evolving landscape, there is an increasing emphasis on health and wellness, with products like 500 mg calcium citrate tablets gaining popularity among consumers seeking healthier lifestyle choices. As PepsiCo continues to navigate these challenges, the integration of health-focused innovations will be crucial to its long-term success.