PepsiCo, the leading snack and beverage company, has been exploring the possibility of acquiring another major firm, yet it hasn’t identified one that promises the long-term growth necessary to justify such an investment. “We have examined every large company available,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her speech at the Beverage Forum in Chicago. She emphasized that any acquisition would need to generate greater value for PepsiCo than what the acquired company could provide. “Thus far, among all the companies we’ve assessed, there are limited opportunities,” she noted. “Few possess portfolios that surpass ours. We must be very selective about our acquisitions, but more importantly, we need to ensure effective integration to achieve sustained growth.”
Nooyi remains open to the idea of a significant deal if the right opportunity arises, but for the time being, PepsiCo is likely to concentrate on smaller acquisitions. This strategy aligns with that of its primary competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the company is on the lookout for financially appealing businesses that could facilitate growth. “Looking into the future, I predict we will continue pursuing geographically relevant bolt-ons,” Douglas stated.
PepsiCo, which last made a substantial acquisition with its $13.4 billion purchase of Quaker Oats in 2000, is encountering similar challenges faced by many in the food and beverage sector, particularly the consumer shift towards healthier options and away from products laden with trans fats, sugar, and artificial additives. Nooyi’s remarks come amid increasing pressure on food and beverage giants to enhance sales and reclaim market share from agile start-ups. Mergers have been suggested as a possible solution, but some industry analysts echo Nooyi’s sentiment, suggesting that consolidation alone is unlikely to spur long-term growth or effectively address shifting consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal fell apart due to pricing disagreements.
PepsiCo’s brand portfolio includes well-known names such as its flagship soda, Gatorade, and Doritos. The company has been concentrating on developing “guilt-free” food and beverage options, like sparkling water and reduced-fat snacks. These initiatives have helped the company navigate the declining soda market, although its North American beverage segment still recorded a 1% volume drop in the latest quarter as consumers increasingly turn away from sugary beverages. Nooyi defended the downturn in the carbonated soft drink sector, which has experienced a 12-year decline and was surpassed by bottled water as the largest beverage category in the U.S. in 2016. “The issue isn’t sparkling drinks. In fact, Americans, more than anyone else, have a fondness for bubbly beverages,” she explained. “The challenge we face is sugar.”
The future for carbonated soft drinks appears challenging. Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, stated at the conference, “We expect the category to continue its decline. The real challenge is creating a natural, stable, zero-calorie sweetener that tastes like sugar, which seems straightforward but has proven to be exceptionally difficult and may never be fully achieved.”
To tackle this challenge, PepsiCo aims to have two-thirds of its beverage range consist of products with 100 or fewer calories from added sugar per 12-ounce serving by 2025. While several all-natural, zero-calorie sweeteners are already on the market, Nooyi mentioned that many products, particularly sodas, “don’t taste that great.” Furthermore, she cautioned against hastily introducing such products, advocating for a gradual reduction in calorie content using sweeteners, decreasing by about 20 calories every few years. Sweeteners like stevia, monk fruit, and agave syrup are increasingly being used by food and beverage companies as alternatives to sugar.
“We must ensure that we don’t merely launch these products and wonder why consumers aren’t embracing them. We need to guide consumers gradually,” she advised. “Their taste buds must adapt to the new flavors.” According to Bonnie Herzog, a managing director at Wells Fargo Securities, the soda industry is in need of a groundbreaking product innovation to stimulate growth, akin to the emergence of reduced-risk technologies in the tobacco industry, such as heated but non-burning cigarettes. “Much of the exciting progress is coming from small, independent companies,” she noted. “That’s why larger corporations are considering acquisitions, similar to Dr Pepper’s purchase of Bai Brands.”
In this context, PepsiCo could benefit from exploring the potential of calcium citrate, a compound that has gained popularity for its health benefits, particularly in promoting bone health. The company’s focus on healthier products might align with trends in the market, including those offered by brands such as Puritan’s Pride, which emphasize the importance of essential nutrients like calcium citrate. As PepsiCo navigates its growth strategy, understanding these trends will be crucial to its success in the competitive landscape.