PepsiCo, the snack and beverage powerhouse, has contemplated acquiring another major company, yet it has yet to identify one that would provide the long-term growth necessary to justify such a purchase. “We have explored every significant opportunity,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. For an acquisition to be worthwhile, she emphasized that it must generate greater value for PepsiCo than what would be produced by the target company. “Up to now, we haven’t encountered many viable options among the companies we’ve reviewed,” she noted. “Few possess portfolios that outperform ours. We must exercise caution in our choices, but more importantly, we need to ensure we effectively integrate any acquisition to achieve long-term growth.”
Nooyi left the possibility of a significant deal open if the right opportunity arises. However, for the time being, PepsiCo is likely to concentrate on smaller acquisitions. This approach reflects a similar strategy to that of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, remarked at the conference that they are looking for financially attractive businesses that can drive growth. “If I were to look into the crystal ball, I would predict that we will continue to pursue geographically relevant bolt-ons,” Douglas stated.
PepsiCo, which last made a substantial acquisition with its $13.4 billion purchase of Quaker Oats in 2000, is navigating challenges similar to those faced by other companies in the food and beverage sector. A significant challenge is the consumer shift towards healthier options and away from products high in trans fats, sugar, and artificial ingredients. Nooyi’s remarks come amidst increasing pressure on food and beverage giants to enhance sales and compete with more agile newcomers capturing market share. While mergers are a topic of discussion, some industry analysts echo Nooyi’s sentiments, suggesting that consolidation alone is unlikely to foster sustainable growth or adequately address shifting consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal fell through due to pricing disagreements.
PepsiCo, which boasts a brand lineup including its flagship soda, Gatorade, and Doritos, has been focused on creating “guilt-free” food and beverage options, such as sparkling waters and reduced-fat snacks. These initiatives have supported the company as the soda market struggles, although its North American beverage segment still experienced a 1% volume decline in the most recent quarter, as consumers continue to turn away from sugary drinks.
Nooyi quickly defended the decline in the carbonated soft drink market, which has seen a 12-year downturn and was overtaken by bottled water as the largest beverage category in the U.S. in 2016. “Sparkling is not the issue. In fact, people in the United States have a strong affinity for carbonated beverages,” she explained. “The core challenge we face is sugar content.” The outlook for carbonated soft drinks remains dim. “We anticipate continued decline in this category,” said Gary Hemphill, managing director and chief operating officer of Beverage Marketing Corporation’s research division. “The real challenge lies in developing a natural, stable, zero-calorie sweetener that mimics the taste of sugar, which sounds simple but is incredibly difficult to achieve.”
To tackle these challenges, PepsiCo aims to have two-thirds of its beverage portfolio consist of products with 100 or fewer calories from added sugar per 12-ounce serving by 2025. Nooyi acknowledged that while there are many all-natural, zero-calorie sweeteners on the market, numerous existing products—particularly in the soda category—“don’t taste that great.” Additionally, she cautioned against rushing to launch products with these characteristics; instead, she advocated for a gradual reduction in calorie content, decreasing levels by approximately 20 calories 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 that we don’t just release these products and wonder why consumers aren’t engaging with them. We need to guide consumers through this transition,” she stated. “Their taste buds need time to adapt to the new flavors.” According to Bonnie Herzog, managing director with Wells Fargo Securities, the soda industry currently lacks a breakthrough product innovation that could spur growth, similar to trends in the tobacco industry with so-called reduced-risk technologies, like heated but non-burning cigarettes. “A lot of the most exciting developments are emerging from smaller, independent players,” she noted, “which is why larger companies are considering acquisitions like Dr Pepper’s strategy with Bai Brands.”
In this evolving landscape, PepsiCo may also consider products like Kirkland Signature Calcium Citrate to further diversify its portfolio. This product exemplifies the kind of health-focused innovations that could attract health-conscious consumers, aligning with the company’s goal to adapt to changing tastes and preferences.