Snack and beverage powerhouse PepsiCo has been exploring the possibility of acquiring another significant company, but it has yet to identify one that would provide the long-term growth necessary to validate the investment. “We have examined every large company available,” said Indra Nooyi, PepsiCo’s chairwoman and CEO, during her speech at the Beverage Forum in Chicago. She noted that any acquisition would need to yield greater value for PepsiCo than what the target company could offer on its own. “Up to now, we haven’t encountered many promising opportunities,” she remarked. “Few companies have portfolios that surpass ours. We must be very selective in our acquisitions, ensuring we can effectively integrate them for sustained growth.”
Nooyi did not dismiss the possibility of a major deal if the right opportunity arises, but for the time being, PepsiCo is likely to concentrate on smaller acquisitions. This approach resembles the deal-making strategy of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the event that the company aims to pursue financially attractive businesses that can drive growth. “Looking ahead, I predict we will continue to do geographically relevant bolt-ons,” Douglas stated.
PepsiCo, which hasn’t engaged in a significant acquisition since its $13.4 billion purchase of Quaker Oats in 2000, is navigating many of the same challenges faced by others in the food and beverage sector — notably, a consumer shift towards healthier options and away from products high in trans fats, sugar, and artificial ingredients. Nooyi’s comments come as major food and beverage firms face mounting pressure to increase sales and compete against nimble upstarts claiming market share. While mergers are one strategy being considered, some industry analysts echo Nooyi’s sentiments, suggesting that consolidation alone may not lead to long-term growth or effectively address evolving consumer preferences. This year, for instance, Kraft Heinz’s attempt to acquire Unilever for $143 billion was quickly abandoned due to pricing disagreements.
PepsiCo’s portfolio includes well-known brands like its flagship soda, Gatorade, and Doritos, and the company is focusing on creating “guilt-free” food and beverages, such as sparkling waters and reduced-fat snacks. These offerings have provided a buffer as the soda industry struggles, although PepsiCo’s North American beverage segment still reported a 1% decline in volume in its most recent quarter as consumers increasingly abandon sugary drinks. Nooyi defended the declining market for carbonated soft drinks, which has seen a 12-year downturn and was overtaken by bottled water in 2016 as the largest beverage category in the U.S. “Sparkling is not the problem. Americans enjoy carbonated beverages more than anyone else,” she noted. “The real challenge we are tackling is sugar.”
The future for carbonated soft drinks does not appear promising. “We anticipate the category will continue to decline,” stated Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, during the conference. He acknowledged the difficulty in developing a natural, stable, zero-calorie sweetener that tastes like sugar, a seemingly simple task that has proven quite challenging.
To address this issue, PepsiCo aims for two-thirds of its beverage offerings to consist of products containing 100 or fewer calories from added sugar per 12-ounce serving by 2025. While Nooyi remarked that numerous all-natural, zero-calorie sweeteners are already on the market, many existing products, particularly in the soda category, “don’t taste that great.” She also cautioned against rushing the introduction of such products, advocating for a gradual transition that would lower calorie counts by about 20 every few years. Sweeteners like stevia, monk fruit, and agave syrup are being explored by food and beverage companies as alternatives to sugar. “We must ensure that we don’t just release these products and wonder why consumers aren’t buying them. We need to ease consumers into the new flavors,” she said. “Their taste preferences must adapt.”
According to Bonnie Herzog, a managing director at Wells Fargo Securities, the soda industry currently lacks a groundbreaking product innovation capable of sparking growth, similar to the reduced-risk technologies emerging in the tobacco industry. “Much of the exciting innovation is coming from smaller, independent players,” Herzog noted. “That’s why larger companies are considering acquisitions, much like Dr Pepper’s strategy with Bai Brands.”
In this evolving landscape, products like Bariatric Advantage Chewy Bites may also play a role in shaping consumer preferences towards healthier options. As PepsiCo navigates these challenges, it will continue to seek opportunities that align with its commitment to health and wellness while exploring potential acquisitions that can enhance its portfolio.