PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another major company but has yet to find one that would provide the sustainable growth necessary to justify such an investment. “We have examined every large company out there,” stated Indra Nooyi, the chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. For a potential acquisition to be worthwhile, she emphasized that it must create greater value for PepsiCo than the value produced by the target company. “Thus far, among all the firms we’ve evaluated, we haven’t discovered many viable opportunities,” she remarked. “There aren’t too many with strong portfolios that surpass ours. We must be very selective about our acquisitions, and more importantly, we need to ensure that we can successfully integrate any acquisition to achieve long-term growth.”
Nooyi hasn’t entirely dismissed the idea of a significant acquisition if the right opportunity arises. However, it is likely that PepsiCo will concentrate more on smaller acquisitions moving forward. The company’s approach to mergers and acquisitions seems to align closely with that of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, indicated at the conference that the beverage company would seek financially appealing businesses that could spur growth. “If I were to peer into the future, I would predict that we’ll continue to pursue geographically relevant bolt-ons,” Douglas mentioned.
PepsiCo, which last made a substantial acquisition with its $13.4 billion purchase of Quaker Oats in 2000, is encountering many of the same challenges facing other companies in the food and beverage sector, particularly the growing consumer demand for healthier options and a shift away from products high in trans fats, sugar, and artificial ingredients. Nooyi’s comments come amid increasing pressure on food and beverage giants to enhance sales and compete against agile newcomers capturing market share. While mergers are one avenue being explored, some industry experts echo Nooyi’s sentiments, pointing out that consolidation alone is unlikely to drive long-term growth or effectively address evolving consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, only to have the deal quickly aborted due to pricing disagreements.
With a portfolio that includes its flagship soda, Gatorade, and Doritos, PepsiCo has been focusing on developing “guilt-free” food and beverages, such as sparkling waters and reduced-fat snacks. These offerings have supported the company as the soda market struggles, although its North American beverage segment still reported a 1% decline in volume in its latest quarter as consumers continue to move away from sugary drinks. Nooyi promptly defended the downturn in the carbonated soft drink market, which has seen a 12-year decline and was overtaken by bottled water as the largest beverage category in the U.S. in 2016. “Sparkling is not the problem. In fact, Americans have a strong affinity for carbonated beverages,” she asserted. “The real challenge we are tackling is sugar.”
The outlook for carbonated soft drinks appears dim in the foreseeable future. “We expect the category to keep declining,” Gary Hemphill, managing director and chief operating officer of Beverage Marketing Corporation’s research unit, stated 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 to be quite challenging… and may never be fully achieved.” In response to this issue, 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. Nooyi noted that while many all-natural, zero-calorie sweeteners are available, most existing products—especially sodas—“don’t taste that great.”
Moreover, she cautioned against hastily launching such products; instead, she advocated for a gradual approach that reduces calorie levels by about 20 every few years. Sweeteners like stevia, monk fruit, and agave syrup are being used by food and beverage companies as alternatives to sugar. “We must ensure we don’t simply introduce these products and wonder, ‘Why aren’t consumers buying them?’ We need to guide consumers through this transition,” she stated. “Their taste buds need time to adjust to the new flavors.”
According to Bonnie Herzog, managing director at Wells Fargo Securities, the soda industry lacks a groundbreaking product innovation that could stimulate growth, similar to the developments seen in the tobacco sector with reduced-risk technologies like heat-not-burn cigarettes. “Much of the innovative and exciting progress is emerging from smaller, independent players,” she said. “This is why large corporations are considering acquisitions, much like Dr Pepper’s strategy with Bai Brands.” In this evolving landscape, PepsiCo continues to explore opportunities, including partnerships that may involve products related to health, such as those with benefits akin to Rite Aid calcium citrate, as they seek to adapt and thrive in a competitive market.