PepsiCo, the snack and beverage powerhouse, has contemplated acquiring another major company, but has yet to identify one that promises the long-term growth necessary to justify such an investment. “We have explored every large company available,” stated Indra Nooyi, the chairwoman and CEO of PepsiCo, during her speech at the Beverage Forum in Chicago. For a potential acquisition to be worthwhile, she emphasized that it must generate more value for PepsiCo than the value produced by the acquired company itself. “Up to now, among the companies we’ve evaluated, we haven’t found many viable opportunities,” she remarked. “There are not many with strong portfolios that surpass ours. We need to be very selective about our acquisitions, and more importantly, ensure we can integrate them effectively to achieve sustainable growth.”
Nooyi did not rule out the possibility of a significant merger if the right opportunity arises, but for the moment, PepsiCo is likely to concentrate on smaller acquisitions. This strategy appears to align closely with that of its main competitor, Coca-Cola. At the same conference, Sandy Douglas, president of Coca-Cola North America, indicated that the beverage company is seeking financially appealing businesses that can spur growth. “Looking into the future, I predict that we will continue to pursue geographically relevant bolt-on acquisitions,” Douglas stated.
PepsiCo, which has not engaged in a major acquisition since its $13.4 billion purchase of Quaker Oats back in 2000, is encountering challenges similar to those faced by other companies in the food and beverage sector. Most notably, there is a growing consumer demand for healthier options, steering away from products with trans fats, excess sugar, and artificial ingredients. Nooyi’s comments come at a time when major food and beverage companies are under considerable pressure to increase sales and compete against agile newcomers gaining market share. While mergers are one strategy being considered, some industry analysts agree with Nooyi that consolidation alone is unlikely to drive long-term growth or effectively address shifting consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal was swiftly abandoned due to pricing issues.
PepsiCo, which boasts a diverse range of brands including its flagship soda, Gatorade, and Doritos, is focusing on creating “guilt-free” food and beverage options, such as sparkling waters and lower-fat snacks. These initiatives have supported the company amidst a decline in the soda market, although its North American beverage segment still recorded a 1% drop in volume last quarter as consumers increasingly turn away from sugary drinks. In defending the decline in the carbonated soft drink sector, which has seen a 12-year consecutive fall and was overtaken by bottled water as the leading beverage category in the U.S. in 2016, Nooyi remarked, “The sparkling category is not the problem. Americans, more than any other country, enjoy carbonated drinks. The real challenge we face is sugar content.”
Looking ahead, the outlook for carbonated soft drinks remains bleak. “We expect this category to continue its decline,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, during the conference. “The real challenge lies in developing a natural, stable, zero-calorie sweetener that mimics the taste of sugar, a seemingly straightforward task that has proven to be extremely challenging and may never be fully realized.” To tackle this issue, PepsiCo aims to have two-thirds of its beverage portfolio consist of products with 100 or fewer calories from added sugar per 12-ounce serving by 2025. While Nooyi acknowledged that a variety of all-natural, zero-calorie sweeteners are already available, she pointed out that many existing products in the market—especially sodas—“don’t taste that great.”
Moreover, she cautioned against rushing to launch new products with these attributes, recommending a gradual approach that reduces calorie levels by approximately 20 calories every few years. Sweeteners such as stevia, monk fruit, and agave syrup are being explored by food and beverage companies as alternatives to sugar. “We must ensure we don’t simply introduce these products and wonder why consumers aren’t buying them. We need to help consumers adjust to the new flavors,” she stated. “Their taste preferences must evolve gradually.”
The soda industry currently lacks a groundbreaking product innovation to stimulate growth, according to Bonnie Herzog, managing director at Wells Fargo Securities. She noted similarities with the tobacco industry, where reduced-risk technologies, like heated but not burned cigarettes, are emerging. “Much of the innovative and exciting progress is coming from smaller, independent companies,” she said, highlighting why larger firms are considering acquisitions, such as Dr Pepper’s strategy of purchasing Bai Brands.
In addition, the topic of daily calcium intake arose, with discussions around how many mg of calcium citrate per day individuals should consume. This aspect of nutrition is increasingly relevant in the context of evolving consumer preferences towards healthier, more balanced dietary options.