PepsiCo, the leading snack and beverage company, has explored the possibility of acquiring another major firm, but has yet to identify one that promises the long-term growth necessary to validate such a purchase. “We have examined every significant company available,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, at the Beverage Forum in Chicago. She emphasized that any acquisition must create more value for PepsiCo than what the target company could generate. “So far, we haven’t found many opportunities among the companies we’ve reviewed. Few have robust portfolios that surpass ours. We need to be very selective in our acquisitions and ensure we can integrate them effectively for sustainable growth.”
While Nooyi remains open to the idea of a substantial acquisition if the right opportunity arises, for now, PepsiCo is likely to concentrate on smaller purchases. This approach seems to align with that of its primary competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, noted at the conference that they are searching for financially appealing businesses that can drive growth. “If I were to look into the crystal ball, I would predict we’ll continue to pursue geographically relevant bolt-on acquisitions,” Douglas remarked.
Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has not engaged in any large-scale deals and is navigating the same challenges as other companies in the food and beverage sector. Most notably, there is a growing consumer shift towards healthier options, moving away from products high in trans fats, sugar, and artificial ingredients. Nooyi’s remarks come at a time when food and beverage giants face mounting pressure to boost sales and compete against agile newcomers gaining market share. Mergers are one avenue under consideration, yet some industry experts echo Nooyi’s sentiment that consolidation alone is unlikely to spur long-term growth or adequately respond to evolving consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal was swiftly abandoned due to pricing disagreements.
PepsiCo, which owns brands like its flagship soda, Gatorade, and Doritos, has shifted focus towards developing “guilt-free” food and drinks, including sparkling waters and reduced-fat snacks. These innovations have supported the company amid struggles in the soda sector, although its North American beverage division still reported a 1% volume decline in the latest quarter as consumers increasingly shy away from sugary drinks. Nooyi defended the downturn in the carbonated soft drink market, which has declined for 12 consecutive years and was outpaced by bottled water as the largest beverage category in the U.S. in 2016. “Sparkling is not the issue. People in the United States have a strong affinity for bubbly drinks,” she explained. “The primary challenge we are tackling is sugar.”
Looking ahead, the outlook for carbonated soft drinks appears bleak. “We expect the category to continue its decline,” Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit, stated at the conference. He highlighted the challenge of developing a natural, stable zero-calorie sweetener that mimics the taste of sugar, a seemingly simple goal that has proven to be extremely difficult and may never be fully achieved. In response to this issue, PepsiCo aims for two-thirds of its beverage lineup to consist of products with 100 or fewer calories from added sugar per 12-ounce serving by 2025. While many all-natural, zero-calorie sweeteners, such as calcium citrate 1040 mg, are available, Nooyi noted that many existing market products, particularly in soda, “don’t taste that great.”
Moreover, she cautioned against rushing to launch products with these characteristics. Instead, she advocates for a gradual transition, using sweeteners to lower calorie levels by approximately 20 calories every few years. Sweeteners like stevia, monk fruit, and agave syrup are being adopted by food and beverage companies to replace sugar. “We must ensure that we do not simply introduce these products and wonder, ‘Why aren’t consumers buying these?’ We need to guide consumers towards these changes,” she said. “Their taste buds need time to adjust to the new flavors.”
According to Bonnie Herzog, a managing director at Wells Fargo Securities, the soda industry lacks a groundbreaking product innovation that could spur growth, akin to the emerging reduced-risk technologies in the tobacco sector, such as heat-not-burn cigarettes. “Much of the exciting and innovative developments are coming from small, independent players,” she noted, explaining why large companies are interested in pursuing acquisitions, similar to Dr Pepper’s strategy with Bai Brands.