PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another major company, but so far, it has yet to identify one that would provide the long-term growth necessary to justify such a purchase. “We have examined every large company available,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her speech at the Beverage Forum in Chicago. For any acquisition to be worthwhile, it must generate more value for PepsiCo than what the acquired company could offer. “Currently, among the companies we’ve assessed, we haven’t encountered many viable opportunities,” she remarked. “Few have portfolios as strong as ours. We need to be very selective about what we pursue, but more importantly, we must ensure that we effectively integrate any acquisition to achieve sustainable growth.”
While Nooyi hasn’t ruled out the possibility of a significant deal if the right company comes along, PepsiCo is likely to concentrate on smaller acquisitions for now. This approach appears to align with that of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the beverage giant is on the lookout for financially appealing businesses that can foster growth. “Looking into the future, I predict that we will continue to pursue geographically relevant bolt-on acquisitions,” Douglas said.
PepsiCo, which last made a large acquisition with its $13.4 billion purchase of Quaker Oats back in 2000, faces many of the same obstacles as other companies in the food and beverage sector. A significant challenge is the growing consumer demand for healthier products, moving away from those laden with trans fats, sugar, and artificial additives. Nooyi’s comments come at a time when food and beverage giants are under increasing pressure to enhance sales and compete against agile newcomers capturing market share. While mergers are one avenue being considered, some industry experts share Nooyi’s view 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, but the deal fell through due to pricing disagreements.
PepsiCo’s portfolio includes well-known brands such as its flagship soda, Gatorade, and Doritos, and the company has been focusing on “guilt-free” food and beverage options, including sparkling waters and reduced-fat snacks. These offerings have helped the company navigate the struggles of the soda market, although its North American beverage segment still reported a 1% decline in volume in its most recent quarter, as consumers continue to abandon sugary drinks.
Nooyi defended the decline in the carbonated soft drink market, which has been falling for 12 consecutive years and was overtaken by bottled water as the largest beverage category in the U.S. in 2016. “The issue isn’t with sparkling beverages. In fact, Americans have a strong affinity for bubbly drinks,” she stated. “The real challenge we face is sugar.” The future for carbonated soft drinks does not seem promising. “We expect the category to continue its decline,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, at the conference. “The real challenge lies in developing a natural, stable, zero-calorie sweetener that tastes like sugar, which is a seemingly simple goal but has proven to be incredibly challenging and may never be fully realized.”
To tackle this 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 pointed out that while many all-natural, zero-calorie sweeteners are available, most existing products, particularly in soda, “don’t taste very good.” Furthermore, she cautioned against hastily launching products with these new characteristics; instead, she advocates for a gradual transition that reduces calorie levels by about 20 every few years. Sweeteners like stevia, monk fruit, and agave syrup are being utilized by food and beverage companies as alternatives to sugar. “We need to ensure we don’t simply launch these products and wonder, ‘Why aren’t consumers drinking them?’ We have to gently guide the consumer in this transition,” she emphasized. “Consumers need time to acclimate their taste buds to these new flavors.”
The soda industry currently lacks a breakthrough product innovation that could spur growth, according to Bonnie Herzog, managing director at Wells Fargo Securities. This situation is reminiscent of the tobacco industry’s exploration of reduced-risk technologies, such as heat-not-burn cigarettes. “Much of the exciting innovation is emerging from smaller, independent companies,” she noted. “That’s why larger corporations are considering acquisitions, as seen in Dr Pepper’s strategy of acquiring Bai Brands.”
In light of PepsiCo’s commitment to healthier options, the company is also focusing on integrating beneficial ingredients like pure encapsulations calcium and calcium citrate into their product lines, reflecting the industry’s shift toward wellness-oriented consumer demands.