PepsiCo, a leading player in the snack and beverage industry, has contemplated acquiring another significant company; however, it has yet to find one that would provide the long-term growth necessary to justify such a purchase. “We have explored every large company available,” stated Indra Nooyi, the chairwoman and CEO of PepsiCo, during her speech at the Beverage Forum in Chicago. She emphasized that for a deal to be worthwhile, it must generate more value for PepsiCo than what the acquired company could offer. “So far, among the companies we’ve evaluated, there aren’t many promising opportunities,” she remarked. “Few possess robust portfolios that surpass ours. We must be very selective in our acquisitions, ensuring that we can integrate them well to achieve sustained growth.”
Nooyi did not entirely dismiss the idea of a significant merger if the right opportunity arises, but for the time being, PepsiCo is likely to concentrate on smaller acquisitions. This approach aligns with the strategy of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, noted at the conference that the beverage giant aims to pursue financially attractive businesses that can drive growth. “Looking into the future, I predict we will continue to pursue geographically relevant bolt-ons,” Douglas mentioned.
Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has not engaged in any major deals. The company is encountering similar hurdles as other organizations in the food and beverage sector, particularly the increasing consumer demand for healthier options and a move away from products containing trans fats, sugar, and artificial additives. Nooyi’s comments come amid pressures on food and beverage titans to enhance sales and compete against agile startups capturing market share. While mergers are one strategy being explored, some industry analysts have echoed Nooyi’s sentiment that consolidation alone is unlikely to drive long-term growth or effectively respond to 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, with its well-known brands such as its flagship soda, Gatorade, and Doritos, has shifted its focus towards creating “guilt-free” food and drinks, including sparkling waters and reduced-fat snacks. This pivot has helped the company navigate the challenges facing the soda market, although its North American beverage segment still saw a 1% decline in volume during its latest quarter as consumers increasingly turn away from sugary beverages. In defending the ongoing decline in the carbonated soft drink market—now in its twelfth consecutive year, having been overtaken by bottled water as the largest beverage category in the U.S. in 2016—Nooyi stated, “Sparkling drinks aren’t the problem. In fact, consumers in the U.S. have a strong affinity for carbonated beverages.” She identified sugar as the primary concern.
Looking ahead, the prospects for carbonated soft drinks remain bleak. “We anticipate that this category will continue to decline,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research unit. He pointed out the pressing challenge of developing a natural, stable zero-calorie sweetener that effectively mimics sugar—a task that, while seemingly straightforward, has proven to be quite complex. To tackle this issue, PepsiCo aims to ensure that by 2025, two-thirds of its beverage portfolio will consist of products with 100 or fewer calories derived from added sugars per 12-ounce serving.
Nooyi acknowledged the availability of various all-natural, zero-calorie sweeteners, but noted that many existing products, particularly in the soda segment, “do not taste very good.” She cautioned against rushing to release such products, advocating instead for a gradual reduction in sweetness that decreases calorie content by about 20 calories every few years. Sweeteners like stevia, monk fruit, and agave syrup are being considered by food and beverage companies as alternatives to sugar. “We need to ensure that we don’t simply launch these products and wonder why consumers aren’t embracing them. We must gently guide consumers towards these options,” she said. “Their taste preferences need time to adjust.”
According to Bonnie Herzog, managing director at Wells Fargo Securities, the soda industry is currently lacking a groundbreaking product innovation that could stimulate growth, akin to the shift in the tobacco industry towards reduced-risk technologies, such as heat-not-burn cigarettes. “Much of the exciting innovation is emerging from small, independent companies,” Herzog stated, highlighting why major corporations are interested in exploring acquisitions, much like Dr Pepper’s strategy with Bai Brands.
In conclusion, as PepsiCo navigates the evolving landscape of consumer preferences and seeks to innovate within its beverage offerings, it remains focused on strategies that will help it thrive, possibly even incorporating products that enhance nutritional benefits, such as pure encapsulations calcium, to better align with consumer health trends.