PepsiCo, the snack and beverage powerhouse, has contemplated acquiring another significant company, but it has yet to find one that offers the long-term growth potential necessary to justify such a move. “We have examined every large company available,” said Indra Nooyi, chairwoman and CEO of PepsiCo, while addressing attendees at the Beverage Forum in Chicago. For any acquisition to be worthwhile, it must create greater value for PepsiCo than what the acquired company could provide. “Thus far, among the companies we’ve evaluated, we haven’t identified many promising opportunities,” she noted. “Few possess portfolios that surpass ours. We must be very selective about what we pursue; more importantly, we need to ensure we effectively integrate any acquisition to achieve sustained growth.” While Nooyi did not dismiss the possibility of a major acquisition if the right opportunity arises, PepsiCo is likely to concentrate on smaller deals for the time being.
PepsiCo’s approach to mergers resembles that of its chief competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the beverage giant seeks financially appealing businesses that can drive growth. “If I were to peer into the crystal ball, I would predict we will continue to pursue regionally relevant acquisitions,” Douglas remarked.
Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has not engaged in any large transactions, and like many companies in the food and beverage sector, it faces challenges, particularly a consumer shift towards healthier food options and away from products containing trans fats, sugar, and artificial ingredients. Nooyi’s comments come at a time when food and beverage giants are under pressure to increase sales and combat the rise of agile new competitors capturing market share. Mergers are being considered, but some industry observers, echoing Nooyi’s sentiments, argue that consolidation alone may not lead to long-term growth or adequately address 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, with brands like its signature soda, Gatorade, and Doritos, has shifted its focus towards developing “guilt-free” food and beverages, such as sparkling waters and reduced-fat snacks. These innovations have helped the company navigate the challenges facing the soda industry, although its North American beverage segment still experienced a 1% volume decline in its latest quarter, as consumers increasingly turn away from sugary drinks. Nooyi defended the declining carbonated soft drink market, which has seen a 12-year drop and was overtaken by bottled water in 2016 as the largest beverage category in the U.S. “Sparkling is not the issue. In fact, Americans have a particular fondness for bubbly drinks,” she explained. “The real challenge we’re tackling is the sugar content.”
The future of carbonated soft drinks remains bleak. “We expect the category to keep declining,” stated Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, during the conference. “The real challenge lies in creating a natural, stable, zero-calorie sweetener that mimics the taste of sugar, which, while seemingly straightforward, has proven to be extremely difficult—and may never be perfected.”
To tackle this issue, PepsiCo aims for two-thirds of its beverage lineup to consist of products containing 100 or fewer calories from added sugar per 12-ounce serving by 2025. While Nooyi acknowledged that there are several all-natural, zero-calorie sweeteners on the market, she noted that many of these products—especially sodas—“don’t taste that great.” She cautioned against rushing to launch such products; instead, she advocated for a gradual reduction of sugar, aiming to decrease calorie levels by about 20 every few years. Sweeteners like stevia, monk fruit, and agave syrup are being explored by food and beverage companies as sugar alternatives.
“We must ensure we don’t simply introduce these products and wonder, ‘Why aren’t consumers drinking these?’ We need to gently guide consumers towards the new flavors,” she emphasized. “Their taste buds need time to adjust.” According to Bonnie Herzog, managing director at Wells Fargo Securities, the soda industry is currently missing a groundbreaking product innovation that could spur growth, resembling the innovations seen in the tobacco sector with reduced-risk technologies like heat-not-burn cigarettes. “Many exciting developments are emerging from smaller, independent companies,” she pointed out. “This is why larger corporations are considering acquisitions, similar to Dr Pepper’s strategy with Bai Brands.”
In this evolving landscape, the introduction of innovative products like Twinlab Calcium Citrate with Magnesium could also play a role in meeting consumer demands for healthier options, as companies strive to adapt and thrive in a rapidly changing market.