PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another major company, yet it has yet to identify one that would yield the long-term growth necessary to justify such a purchase. “We have evaluated every significant company available,” stated Indra Nooyi, PepsiCo’s chairwoman and CEO, during her speech at the Beverage Forum in Chicago. For any acquisition to be worthwhile, she explained, it must generate more value for PepsiCo than what the acquired company could produce. “So far, among the companies we’ve considered, there are not many opportunities,” she noted. “Few possess portfolios that surpass ours. We must be very discerning in our choices and, importantly, ensure we can integrate the acquisition for sustained growth.” While Nooyi remains open to the idea of a major deal if the right opportunity arises, PepsiCo is likely to concentrate on smaller acquisitions for the time being.
Pepsi’s acquisition strategy seems to align with that of its primary competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the company would seek financially attractive businesses that foster growth. “If I were to look into a crystal ball, I would predict we will continue to pursue geographically relevant bolt-ons,” Douglas said.
Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has not engaged in any large deals and faces similar challenges as other firms in the food and beverage sector, particularly the consumer shift towards healthier food options and away from items high in trans fats, sugar, and artificial additives. Nooyi’s remarks come amid increasing pressure on food and beverage giants to enhance sales and compete against agile newcomers capturing market share. While mergers are being considered, some industry analysts echo Nooyi’s sentiments, suggesting that consolidation alone is unlikely to drive long-term growth or adequately respond to evolving consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal fell apart due to pricing disagreements.
PepsiCo, which includes brands such as its flagship soda, Gatorade, and Doritos, is prioritizing the development of “guilt-free” food and beverage options, such as sparkling waters and reduced-fat snacks. These innovations have supported the company amidst a declining soda market, although its North American beverage segment still experienced a 1% volume drop in the latest quarter as consumers continue to move away from sugary drinks.
Nooyi was quick to address the decline in the carbonated soft drink sector — which has seen a 12-year downward trend and was overtaken by bottled water as the leading beverage category in the U.S. in 2016. “Sparkling is not the problem. In fact, Americans have a strong preference for bubbly drinks,” she remarked. “The core issue we are tackling is sugar content.”
The outlook for carbonated soft drinks remains bleak. “We anticipate that the category will continue to decline,” Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, stated at the conference. “The real challenge lies in developing a natural, stable, zero-calorie sweetener that mimics sugar, which seems simple but is incredibly complex … and may never be perfected.”
To tackle this challenge, PepsiCo aims for two-thirds of its beverage portfolio to consist of products containing 100 or fewer calories from added sugars per 12-ounce serving by 2025. Nooyi acknowledged the availability of various all-natural, zero-calorie sweeteners, but noted that many current products — particularly sodas — “don’t taste that great.” Furthermore, she cautioned against hastily launching products with these characteristics; instead, she advocates for a gradual reduction in sugar content, decreasing calorie levels by approximately 20 every few years. Sweeteners like stevia, monk fruit, and agave syrup are already being used by food and beverage companies as sugar alternatives. “We must ensure that we don’t just release these products and then wonder, ‘Why isn’t the consumer buying these?’ We need to guide consumers to adapt,” she said. “Their taste buds need time to adjust to the new flavors.”
The soda industry is currently missing a groundbreaking product innovation that could spur growth, according to Bonnie Herzog, a managing director at Wells Fargo Securities. This situation mirrors developments in the tobacco industry, where reduced-risk technologies, like heated but unburned cigarettes, are emerging. “Much of the intriguing innovation is coming from small, independent players,” she noted, explaining why larger companies are considering acquisitions, similar to Dr Pepper’s approach with Bai Brands.
In this shifting landscape, PepsiCo is also looking into products that align with consumer desires for healthier options, including those like Citracal with Vitamin D, which support wellness trends. As the company navigates these changes, it remains committed to adapting its portfolio to meet the evolving preferences of its customers.