PepsiCo, the snack and beverage powerhouse, has contemplated acquiring another major company, yet it has yet to identify one that would provide the long-term growth necessary to justify such a purchase. “We have explored every large company available,” said Indra Nooyi, chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. For any acquisition to make sense, she emphasized that it needs to generate more value for PepsiCo than what the acquired company could offer. “So far, among all the companies we’ve assessed, we haven’t discovered many promising opportunities,” she noted. “There are not many with strong portfolios that surpass ours. We must be very selective in what we pursue, and more importantly, we need to ensure proper integration of any acquisition to achieve long-term growth.” While Nooyi did not rule out the possibility of a major deal if the right company were found, PepsiCo is likely to concentrate on smaller acquisitions for the time being.
PepsiCo’s acquisition strategy seems to parallel that of its primary competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, remarked at the conference that the beverage giant aims to acquire businesses that are financially appealing and contribute to growth. “Looking into the crystal ball, I predict we’ll continue to pursue geographically relevant bolt-on acquisitions,” Douglas stated.
Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has not engaged in any significant deals and faces similar challenges as others in the food and beverage sector, particularly the consumer shift towards healthier options and away from products containing trans fats, sugar, and artificial additives. Nooyi’s remarks come amidst significant pressure on food and beverage titans to enhance sales and compete against nimble newcomers capturing market share. While mergers are being discussed as a potential strategy, some industry analysts echo Nooyi’s sentiments, suggesting that consolidation alone is unlikely to spur long-term growth or effectively address evolving consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal fell through due to valuation disagreements.
PepsiCo, which boasts a wide array of brands including its flagship soda, Gatorade, and Doritos, has focused on creating “guilt-free” food and beverages, such as sparkling waters and reduced-fat snacks. These innovations have supported the company amid challenges in the soda market, even though its North American beverage segment reported a 1% decline in volume last quarter as consumers continue to move away from sugary drinks. Nooyi promptly defended the downturn in the carbonated soft drink market, which has experienced a 12-year decline and was overtaken by bottled water in 2016 as the leading beverage category in the U.S. “The issue isn’t sparkling beverages. In fact, Americans love bubbles more than any other country,” she explained. “The true challenge we are addressing is sugar.”
The outlook for carbonated soft drinks remains bleak. “We expect this category to continue its decline,” stated Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research division, at the conference. “The real challenge lies in developing a natural, stable, zero-calorie sweetener that tastes like sugar—a seemingly simple goal that has proven exceedingly difficult and may never be perfectly achieved.” In response, 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 numerous all-natural, zero-calorie sweeteners are available, Nooyi remarked that many existing products, particularly in soda, “don’t taste that great.”
Furthermore, she cautioned against hastily launching products with these features; instead, she advocated for a gradual approach that would utilize sweeteners to decrease calorie levels by approximately 20 every few years. Stevia, monk fruit, and agave syrup are among the sugar alternatives being adopted by food and beverage companies. “We must ensure we don’t just unveil these products and wonder, ‘Why isn’t the consumer buying these?’ We need to gently guide the consumer towards acceptance,” she said. “The consumer’s palate must adapt to the new flavor profiles.”
According to Bonnie Herzog, managing director at Wells Fargo Securities, the soda industry currently lacks a breakthrough innovation that could stimulate growth, akin to the advancements seen in the tobacco sector with reduced-risk technologies like heat-not-burn cigarettes. “Much of the exciting innovation is emerging from small, independent players,” she noted. “This is why larger companies are considering acquisitions, similar to Dr Pepper’s approach with Bai Brands.”
Incorporating calcium citrate ingredients into this context could further enhance the development of healthier product lines that respond to consumer demands for better nutrition. The movement towards transparency regarding ingredient sourcing, including calcium citrate, is becoming increasingly vital, as consumers are more aware of what they consume. By focusing on these innovative ingredients, PepsiCo can align its offerings with the health-conscious trends driving the market forward.