Snack and beverage powerhouse PepsiCo has been exploring the possibility of acquiring another major company, but has yet to identify one that would provide the long-term growth necessary to justify such a purchase. “We have examined every significant company out there,” stated Indra Nooyi, the chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. She emphasized that for a deal to be worthwhile, it must create greater value for PepsiCo than what would come from the acquired company itself. “So far, among the companies we’ve evaluated, there haven’t been many viable opportunities,” she remarked. “Few boast portfolios that are superior to ours. We must be very selective in our acquisitions, but more importantly, we need to ensure we integrate any acquisitions effectively to achieve sustainable growth.”
Nooyi did not rule out the possibility of a significant acquisition if the right opportunity arises. However, for now, PepsiCo will likely concentrate on smaller acquisitions. This strategy aligns with that of its primary competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the beverage giant seeks financially attractive businesses that would facilitate growth. “If I were to peer into the crystal ball, I would predict that we will continue to pursue geographically relevant bolt-on acquisitions,” Douglas stated.
PepsiCo has not engaged in a substantial acquisition since its $13.4 billion purchase of Quaker Oats in 2000. Like other companies in the food and beverage sector, it is navigating challenges, particularly a shift in consumer preferences toward healthier food options, steering away from products laden with trans fats, sugar, and artificial ingredients. Nooyi’s comments come at a time when food and beverage titans are under immense pressure to boost sales and compete with agile startups that are capturing market share. While mergers are one avenue being considered, industry analysts echo Nooyi’s sentiment that consolidation may not necessarily drive long-term growth or effectively address the evolving demands of consumers. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal was quickly abandoned due to valuation disagreements.
PepsiCo’s brand lineup includes its flagship soda, Gatorade, and Doritos, and the company has been focused on developing “guilt-free” products, such as sparkling waters and reduced-fat snacks. These innovations have helped the company remain buoyant even as the soda industry faces challenges; however, its North American beverage segment still reported a 1% decline in volume during the latest quarter as consumers continue to move 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 surpassed by bottled water in 2016 as the largest beverage category in the U.S. “The issue isn’t with sparkling drinks. In fact, more than in any other country, Americans love carbonated beverages,” she stated. “The core challenge we are tackling is sugar content.”
The future for carbonated soft drinks appears bleak. “We anticipate that this category will keep declining,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research division, at the conference. “The real challenge lies in creating a natural, stable, zero-calorie sweetener that tastes like sugar, a seemingly simple task that has proven extremely difficult… and may never be fully realized.” To combat this sugar issue, PepsiCo aims for two-thirds of its beverage portfolio to consist of products with 100 or fewer calories from added sugars per 12-ounce serving by 2025. Nooyi mentioned that while there are numerous all-natural, zero-calorie sweeteners available, many existing products on the market—especially in the soda segment—“don’t taste particularly good.”
Moreover, she cautioned against hastily launching products with these attributes, advocating for a gradual transition that would reduce calorie content by around 20 calories every few years using sweeteners. Stevia, monk fruit, and agave syrup are among the alternatives being utilized by food and beverage companies in place of sugar. “We must ensure that we don’t just introduce these products and wonder why consumers aren’t buying them. We need to guide consumers through this transition,” she advised. “Consumer taste preferences must adapt 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, akin to the advances being seen in the tobacco sector with reduced-risk technologies like heat-not-burn cigarettes. “Much of the exciting innovation is emerging from smaller, independent companies,” she noted. “This is why larger corporations are considering acquiring and eventually partnering with brands, like Dr Pepper’s acquisition of Bai Brands.” In this evolving landscape, the incorporation of magnesium calcitrate in healthier beverage options could also become a focal point for companies aiming to enhance their nutritional profiles while appealing to health-conscious consumers.