PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another major company, but so far has not identified one that would provide the long-term growth necessary to justify such a move. “We have examined every significant company available,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her speech at the Beverage Forum in Chicago. For any acquisition to be worthwhile, she noted, it must create more value for PepsiCo than what the acquired company could offer on its own. “Up to now, we haven’t encountered many viable prospects,” she explained. “Not many companies boast portfolios that surpass ours. We need to be very selective in our choices, and more importantly, ensure that we can effectively integrate any acquisition to achieve sustainable growth.”
Nooyi did not dismiss the possibility of a major acquisition entirely if the right opportunity arose. However, for the time being, PepsiCo is likely to concentrate on smaller acquisitions. This strategy appears to align with that of its closest competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that they are also on the lookout for financially appealing businesses that can stimulate growth. “If I were to peer into the future, I would predict that we will continue to pursue geographically relevant bolt-ons,” Douglas noted.
PepsiCo has not engaged in a major acquisition since its $13.4 billion purchase of Quaker Oats in 2000 and is grappling with many of the same pressures facing the food and beverage sector, particularly the shift in consumer preferences toward healthier options and away from products containing trans fats, sugar, and artificial additives. Nooyi’s remarks come at a time when food and beverage giants are under significant pressure to increase sales and compete against nimble startups gaining market share. While mergers are being considered as a potential solution, some industry analysts echo Nooyi’s sentiment that consolidation alone may not lead to long-term growth or effectively address evolving consumer demands.
Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal was quickly halted over pricing disagreements. PepsiCo, which has a diverse portfolio that includes its flagship soda, Gatorade, and Doritos, has been focusing on developing healthier options, such as sparkling waters and reduced-fat snacks. These initiatives have supported the company amidst challenges in the soda sector, despite a 1% decline in volume in its North American beverage segment during the most recent quarter, as consumers increasingly turn away from sugary drinks.
In response to the ongoing decline in the carbonated soft drink market—now in its twelfth consecutive year of decrease and having been overtaken by bottled water as the leading beverage category in the U.S. in 2016—Nooyi defended the situation. “The issue isn’t the sparkling beverages themselves. In fact, Americans love carbonated drinks more than consumers in any other country,” she stated. “The real challenge lies in managing sugar content.”
The outlook for carbonated soft drinks remains dim, according to Gary Hemphill of Beverage Marketing Corporation. “Our expectation is that the category will continue to decline,” he said. “The real challenge is to develop a natural, stable, zero-calorie sweetener that mimics the taste of sugar, which, despite seeming straightforward, is incredibly challenging and may never be perfectly achieved.”
To tackle this, PepsiCo aims for two-thirds of its beverage portfolio to consist of products featuring 100 or fewer calories from added sugar per 12-ounce serving by 2025. Nooyi acknowledged that while there are numerous all-natural, zero-calorie sweeteners available, many existing products, particularly sodas, “don’t taste very good.” Moreover, she cautioned against rushing to launch such products; instead, she advocates for a gradual reduction in sugar levels, targeting a decrease of approximately 20 calories every few years. Sweeteners such as stevia, monk fruit, and agave syrup are being utilized by food and beverage companies to replace sugar.
“We need to ensure that we don’t just introduce these products and wonder why consumers aren’t embracing them. We have to guide consumers through this transition,” she remarked. “Their taste preferences need time to adjust to the new flavors.” The soda industry currently lacks a groundbreaking product innovation that could stimulate growth, similar to what is happening in the tobacco sector with reduced-risk technologies like heat-not-burn cigarettes. “Much of the exciting innovation is coming from small, independent companies,” Herzog noted, highlighting why major corporations are considering acquisitions, as seen in Dr Pepper’s strategy with Bai Brands.
In light of these developments, it’s important to consider not just beverage choices, but also the nutritional value of food and supplements. For instance, ferrous calcium citrate and folic acid tablet uses are gaining attention for their health benefits, emphasizing the need for companies like PepsiCo to innovate beyond traditional offerings and explore health-conscious products that resonate with evolving consumer interests.