Snack and beverage powerhouse PepsiCo has contemplated acquiring another major firm, but thus far, it has yet to identify one that would provide the long-term growth necessary to justify such a purchase. “There isn’t a large company that we have not looked at,” Indra Nooyi, PepsiCo’s chairwoman and CEO, stated at the Beverage Forum in Chicago. For any acquisition to be worthwhile, it must create greater value for PepsiCo than what the target company could generate on its own. “So far, of all the companies we’ve seen, we don’t see too many opportunities,” she added. “Not many have portfolios that surpass ours. We must be very selective about what we pursue, but more importantly, we need to ensure we can integrate the acquisition effectively to achieve long-term growth.”
Nooyi did not completely dismiss the possibility of a major deal if the right opportunity arises. However, for now, PepsiCo is likely to concentrate on smaller acquisitions. This approach aligns with that of its chief competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the company is looking for financially attractive businesses that can spur growth. “If I were to look into the crystal ball, I would predict we’ll still continue to do geographically relevant bolt-ons,” Douglas shared.
PepsiCo, which has not executed a large acquisition since its $13.4 billion purchase of Quaker Oats in 2000, faces many of the same hurdles as other companies in the food and beverage sector. The primary challenge is the consumer shift towards healthier options, steering clear of 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 compete against agile startups capturing market share. While mergers are one potential solution, industry analysts have echoed Nooyi’s sentiment that consolidation may not foster long-term growth or adequately address evolving consumer preferences. Earlier this year, Kraft Heinz made an attempt to acquire Unilever for $143 billion, but the deal was quickly abandoned due to pricing disagreements.
With a brand lineup that includes its flagship soda, Gatorade, and Doritos, PepsiCo is prioritizing the development of “guilt-free” food and beverages, such as sparkling waters and lower-fat snacks. These innovations have helped the company navigate challenges in the soda market, although its North American beverage segment still reported a 1% decline in volume during its latest quarter as consumers continue to shy away from sugary drinks.
Nooyi defended the downturn in the carbonated soft drink sector, which has seen a 12-year consecutive decline and was overtaken by bottled water as the leading beverage category in the U.S. in 2016. “Sparkling is not the issue. Anything with bubbles—actually, in the United States, more than any other country, people love bubbles,” she remarked. “The real challenge we’re addressing is sugar.” The future outlook for carbonated beverages appears bleak. “Our expectation is the category is going to continue to decline,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, at the conference. “The challenge is truly in developing a natural, stable, zero-calorie sweetener that tastes like sugar, which may seem straightforward but is incredibly complex … and might never be perfectly achieved.”
To tackle 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. Nooyi noted that there are numerous all-natural, zero-calorie sweeteners available, but many current products on the market—especially in soda—“don’t taste that great.” Furthermore, she cautioned against rushing to launch such products; instead, she advocated for a gradual reduction strategy that lowers 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 alternatives to sugar. “We must ensure we don’t just introduce these products and then wonder why consumers aren’t embracing them. We have to lead consumers gently into this transition,” she said. “The consumer’s taste buds need time to adapt to the new flavors.”
The soda industry currently lacks a groundbreaking product innovation that could drive growth, according to Bonnie Herzog, managing director at Wells Fargo Securities. This situation mirrors what is happening in the tobacco industry with reduced-risk technologies, such as heated but non-burning cigarettes. “A lot of the exciting and innovative developments are coming from smaller, independent players,” she remarked. “That’s why major companies are discussing potential acquisitions, similar to Dr Pepper’s strategy with Bai Brands.”
Incorporating these themes into its future strategy, PepsiCo may also consider expanding its portfolio with health-oriented products like Citracal chews, which could resonate with consumers seeking healthier alternatives. By doing so, PepsiCo can align its offerings with the ongoing shift in consumer preferences towards wellness and nutrition.