PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another major company but has yet to identify one that would provide the long-term growth necessary to justify such a purchase. “We have examined every large company available,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. For any deal to be viable, it must generate greater value for PepsiCo than what the acquired entity could offer. “So far, of all the companies we’ve reviewed, there aren’t many compelling opportunities,” Nooyi remarked. “Few possess portfolios that surpass ours. We must be very selective about our acquisitions, and more importantly, we need to ensure that we effectively integrate any acquisition to achieve sustainable growth.”
While Nooyi hasn’t ruled out the possibility of a major acquisition if the right opportunity arises, PepsiCo is likely to concentrate on smaller purchases for the time being. This approach seems to parallel that of Coca-Cola, PepsiCo’s leading competitor. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the beverage giant is on the lookout for financially appealing businesses that can drive growth. “If I were to gaze into the crystal ball, I would predict that we will continue to pursue geographically relevant acquisitions,” Douglas stated.
PepsiCo, which last engaged in a significant transaction with its $13.4 billion acquisition of Quaker Oats in 2000, is encountering many of the same hurdles as others in the food and beverage sector—most notably, a shift in consumer preferences towards healthier options, steering clear of trans fats, sugar, and artificial additives. Nooyi’s insights come amidst increasing pressure on food and beverage conglomerates to enhance sales and compete against more agile startups that are capturing market share. Although mergers are being discussed as a potential strategy, some industry analysts echo Nooyi’s sentiment that consolidation alone is unlikely to spur long-term growth or effectively 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, whose brand lineup includes its flagship soda, Gatorade, and Doritos, has been focusing on creating “guilt-free” food and beverage options, such as sparkling waters and reduced-fat snacks. These innovations have bolstered the company as the soda sector faces challenges; however, its North American beverage segment still experienced a 1% drop in volume in the latest quarter as consumers increasingly abandon sugary drinks. Nooyi defended the decline in the carbonated soft drink market, which has seen 12 consecutive years of downturn and was overtaken by bottled water in 2016 as the leading beverage category in the U.S. “Sparkling is not the problem. In fact, in the United States, more than any other nation, people have a fondness for bubbles,” she explained. “The real challenge we are tackling is sugar.”
The future for carbonated soft drinks appears bleak. “We expect the category to continue its decline,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research division, at the conference. “The real challenge lies in developing a natural, stable, zero-calorie sweetener that mimics the taste of sugar, which is a simple objective but has proven to be exceedingly challenging … and may never be fully achieved.” To combat this issue, PepsiCo aims for two-thirds of its beverage portfolio to consist of products with 100 or fewer calories from added sugar per 12-ounce serving by 2025. While Nooyi acknowledged the availability of all-natural, zero-calorie sweeteners, she noted that many current products, particularly in soda, “don’t taste very good.”
Furthermore, she cautioned against hastily introducing such products; instead, she advocated for a gradual reduction in calories, targeting a decrease of around 20 calories every few years. Sweeteners like stevia, monk fruit, and agave syrup are being adopted by food and beverage companies in place of sugar. “We need to ensure that we don’t just launch these products and wonder why consumers aren’t embracing them. We must gently guide consumers,” she advised. “Their taste buds need time to adjust to the new flavors.”
The soda industry currently lacks a groundbreaking product innovation that could rejuvenate growth, according to Bonnie Herzog, managing director at Wells Fargo Securities. This situation mirrors the tobacco industry’s exploration of reduced-risk technologies, such as heated, non-burning cigarettes. “Much of the exciting and innovative developments are emerging from small, independent players,” she remarked. “This is why larger corporations express interest in acquiring companies, similar to Dr Pepper’s strategy with Bai Brands.”
In addition to focusing on innovative beverage strategies, PepsiCo has also recognized the importance of incorporating nutritional supplements into their product lines, such as chewable calcium citrate with vitamin D, to meet the growing consumer demand for health-oriented products. By integrating these options, PepsiCo aims to enhance its portfolio further and appeal to health-conscious consumers.