Snack and beverage leader PepsiCo has explored the possibility of acquiring another large company, yet it has yet to identify one that could provide the long-term growth necessary to justify such a purchase. “We have examined every major company out there,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. She emphasized that any potential deal must generate more value for PepsiCo than what the acquired company could offer. “To date, from all the companies we’ve reviewed, we haven’t found many viable opportunities,” she noted. “Few possess robust portfolios that surpass ours. We must be very selective in our acquisitions, ensuring we can integrate them effectively to achieve sustainable growth.”
Nooyi remains open to the idea of a substantial acquisition if the right company arises. However, for the time being, PepsiCo is likely to concentrate on smaller acquisitions. This approach reflects a similar strategy to that of its primary competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, commented at the conference that the beverage giant aims to pursue financially appealing businesses that can spur growth. “If I were to look into the crystal ball, I would predict we’ll continue to make regionally relevant acquisitions,” Douglas remarked.
Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has not engaged in a large-scale deal and is facing challenges similar to those encountered by other companies in the food and beverage sector. These challenges include the increasing consumer demand for healthier options, steering clear of products with trans fats, sugar, and artificial additives. Nooyi’s remarks come amid mounting pressure on food and beverage giants to enhance sales and counter the rising competition from agile startups that are capturing market share. While mergers are being considered as one solution, industry analysts have echoed Nooyi’s sentiment, suggesting that consolidation alone is unlikely to lead to long-term growth or effectively address evolving consumer preferences. For instance, Kraft Heinz’s attempt to acquire Unilever for $143 billion this past February was swiftly abandoned due to pricing disagreements.
PepsiCo, which boasts a brand portfolio that includes its flagship soda, Gatorade, and Doritos, has been focusing on developing “guilt-free” food and beverage options, such as sparkling waters and reduced-fat snacks. These innovations have supported the company amid a struggling soda market, although its North American beverage division still experienced a 1% decline in volume in its latest quarter as consumers increasingly turn away from sugary drinks. Nooyi was quick to defend the ongoing decline in the carbonated soft drink market—which has seen a drop 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 sparkling drinks. In fact, consumers in the United States have a strong preference for bubbly beverages,” she stated. “The true challenge we are addressing is sugar content.”
The future outlook for carbonated soft drinks remains bleak. “We expect this category to keep declining,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, at the conference. “The real challenge lies in creating a natural, stable, zero-calorie sweetener that tastes like sugar—a seemingly simple objective that has proven to be incredibly complex and may never be fully realized.”
To tackle this issue, PepsiCo aims for two-thirds of its beverage portfolio to comprise products with 100 or fewer calories from added sugar per 12-ounce serving by 2025. While numerous all-natural, zero-calorie sweeteners are available, Nooyi pointed out that many existing products, particularly in the soda category, “don’t taste that great.” She cautioned against launching such products too hastily, advocating for a gradual transition that would reduce calorie levels by approximately 20 every few years. Sweeteners like stevia, monk fruit, and agave syrup are being adopted by food and beverage companies in place of sugar. “We must ensure that we don’t simply introduce these products and wonder, ‘Why aren’t consumers drinking them?’ We need to gently guide consumers through the transition,” she remarked. “Their taste buds must acclimate to the new flavors.”
The soda market currently lacks a breakthrough product innovation that could stimulate growth, according to Bonnie Herzog, managing director at Wells Fargo Securities. This situation parallels trends in the tobacco industry with the emergence of so-called reduced-risk technologies, such as heat-not-burn cigarettes. “Much of the exciting and innovative progress is coming from small, independent players,” she noted. “This is why larger companies often discuss pursuing acquisitions, akin to Dr Pepper’s strategy with Bai Brands.”
In summary, as PepsiCo navigates the complexities of the beverage landscape, it continues to seek opportunities for growth while also addressing the evolving preferences of consumers. The potential integration of innovative sweeteners, such as calcium citrate xrd, may play a significant role in shaping the future of PepsiCo’s product offerings as it strives to align with consumer demands and market trends.