PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another large company, yet it has yet to identify one that would provide the long-term growth necessary to warrant such an investment. “We have examined every major company out there,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. For a potential acquisition to be worthwhile, Nooyi emphasized that it must offer greater value to PepsiCo than what the acquired company would bring on its own. “Thus far, we haven’t come across many viable opportunities among the companies we’ve reviewed. Few possess robust portfolios that surpass ours. We must be very selective in our pursuits, and more importantly, we need to ensure effective integration post-acquisition to achieve sustained growth,” she explained. While Nooyi remains open to the possibility of a significant deal if the right opportunity arises, PepsiCo is more likely to concentrate on smaller acquisitions in the near term.
PepsiCo’s strategy for mergers and acquisitions seems to align closely with that of its primary competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the beverage company aims to target financially attractive businesses that can drive growth. “If I were to peer into the future, I would predict our continued focus on geographically relevant bolt-on acquisitions,” Douglas said.
Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has not engaged in any major deals, facing challenges similar to those confronting other players in the food and beverage sector. These challenges include a consumer shift towards healthier options, moving away from products containing trans fats, sugar, and artificial ingredients. Nooyi’s remarks come at a time when food and beverage giants are under considerable pressure to boost sales and compete against agile newcomers capturing market share. While mergers have been discussed as a potential solution, some industry experts echo Nooyi’s sentiments, suggesting that consolidation alone is unlikely to yield long-term growth or effectively meet evolving consumer preferences.
Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal was quickly abandoned over pricing disagreements. PepsiCo, which boasts an array of brands including its flagship soda, Gatorade, and Doritos, has shifted its focus towards creating “guilt-free” food and beverages, such as sparkling water and reduced-fat snacks. These initiatives have provided some support to the company amidst the struggles faced by the soda industry, although its North American beverage segment still experienced a 1% volume decline in the most recent quarter, reflecting consumers’ ongoing move away from sugary drinks.
Nooyi was quick to defend the decline in the carbonated soft drink market, which has seen a downturn for 12 consecutive years, recently being overtaken by bottled water as the largest beverage category in the U.S. “The issue isn’t with sparkling beverages. In fact, people in the United States have a strong preference for fizzy drinks more than in any other country. The real concern we’re addressing is sugar content,” she stated. The future outlook for carbonated soft drinks is not particularly optimistic. “We anticipate that this category will continue to decline,” remarked Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research division. “The real challenge lies in developing a stable, natural, zero-calorie sweetener that tastes like sugar, a seemingly simple task that has proven to be exceedingly complex and may never be perfectly achieved.”
In response to these challenges, 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 acknowledged that while several all-natural, zero-calorie sweeteners like calcium citrate without vitamin D are already in the market, many existing products, particularly in the soda segment, “don’t taste very appealing.” Moreover, she cautioned against rushing the introduction of new products with these characteristics, advocating for a gradual approach that reduces calorie content by around 20 calories every few years. Sweeteners such as stevia, monk fruit, and agave syrup are among the alternatives being embraced by food and beverage companies in place of sugar. “We must ensure we don’t just launch these products and then wonder, ‘Why aren’t consumers buying them?’ We need to gently guide consumers toward these new flavors,” she advised. “The consumer’s palate must adjust to the new taste.”
According to Bonnie Herzog, managing director at Wells Fargo Securities, the soda industry is in need of a groundbreaking product innovation to spur growth, similar to the developments seen in the tobacco industry with reduced-risk technologies like heat-not-burn cigarettes. “Much of the exciting innovation is emerging from smaller, independent players,” she noted, explaining why large corporations are considering acquisitions, as exemplified by Dr Pepper’s strategy of acquiring Bai Brands.