PepsiCo, the snack and beverage powerhouse, has been exploring the possibility of acquiring another large company, but has yet to identify one that would provide the long-term growth necessary to justify such a move. Indra Nooyi, chairwoman and CEO of PepsiCo, stated at the Beverage Forum in Chicago, “We have examined every major company on our radar.” For a potential acquisition to be worthwhile, it must create greater value for PepsiCo than what the acquired company would generate on its own. “Thus far, among all the companies we’ve assessed, there aren’t many promising options,” she remarked. “Few possess robust portfolios that surpass ours. We need to be very selective in our pursuits, and more importantly, we must ensure effective integration to achieve lasting growth.”
While Nooyi did not entirely rule out a significant acquisition if the right opportunity arose, it seems that PepsiCo will primarily concentrate on smaller purchases for the time being. This cautious approach mirrors the strategy of its chief competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the company is seeking financially appealing businesses that can help spur growth. “Looking into the future, I predict we will continue to pursue geographically relevant bolt-on acquisitions,” Douglas commented.
PepsiCo, which has not engaged in a major deal since its $13.4 billion acquisition of Quaker Oats in 2000, is grappling with many of the same challenges faced by other players in the food and beverage sector—most notably, a consumer shift towards healthier options and away from products laden with trans fats, sugar, and artificial additives. Nooyi’s remarks come as larger food and beverage companies face mounting pressure to increase sales and compete against agile upstarts that are capturing market share. While mergers are one avenue being explored, some industry analysts echo Nooyi’s sentiment that consolidation alone is unlikely to drive long-term growth or effectively address shifting consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal fell through due to pricing disagreements.
PepsiCo, known for brands like its flagship soda, Gatorade, and Doritos, has focused on creating “guilt-free” food and beverage options, including sparkling waters and reduced-fat snacks. These innovations have supported the company during tough times in the soda sector, although its North American beverage division still reported a 1% decline in volume last quarter as consumers continue to turn away from sugary drinks. Nooyi was quick to address the decline in the carbonated soft drink market, which has seen a 12-year consecutive drop and was overtaken by bottled water as the top beverage category in the U.S. in 2016. “Sparkling drinks aren’t the problem. In fact, Americans love carbonated beverages more than anyone else,” she stated. “The real challenge lies with sugar.”
The outlook for carbonated soft drinks remains grim. “We expect this category to keep declining,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, at the conference. “The real challenge is developing a natural, stable, zero-calorie sweetener that tastes like sugar—a seemingly simple goal that has proven to be incredibly difficult and may never be perfectly achieved.” To tackle 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. Although there are many all-natural, zero-calorie sweeteners on the market, Nooyi pointed out that numerous existing products, especially in the soda segment, “simply don’t taste that great.”
Furthermore, she cautioned against hastily launching a product with these characteristics; instead, she advocated for a gradual approach that would reduce calorie levels by approximately 20 every few years. Sweeteners like stevia, monk fruit, and agave syrup are increasingly being adopted by food and beverage companies as sugar alternatives. “We must ensure that we don’t just release these products and wonder why consumers are not opting for them; we need to guide consumers through this transition,” she noted. “Consumers’ palates need to acclimate to the new flavors.”
According to Bonnie Herzog, managing director at Wells Fargo Securities, the soda industry lacks a groundbreaking product innovation that could spur growth, drawing a parallel with the tobacco industry’s exploration of reduced-risk technologies, such as heated but unburned cigarettes. “Much of the intriguing innovation is emerging from small, independent players,” she stated. “This is why larger companies are often interested in acquiring brands, much like Dr Pepper’s strategy with Bai Brands.” In this evolving landscape, PepsiCo’s commitment to exploring potential acquisitions and developing healthier products remains crucial as it navigates the challenges of a changing marketplace, including the integration of citracal with D to enhance their offerings.