PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another major company, yet it has not identified one that would provide the long-term growth necessary to justify such a purchase. “We have considered 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 any potential acquisition must deliver greater value to PepsiCo than what would be produced by the target company. “So far, among the companies we’ve reviewed, we haven’t found many viable options,” she noted. “There are not too many with product portfolios that surpass ours. We must be very selective in our choices, and more importantly, we need to effectively integrate any acquisition to achieve long-term growth.”
While Nooyi did not dismiss the idea of a significant acquisition if the right opportunity arises, it appears that PepsiCo will concentrate more on smaller purchases for the time being. This approach aligns with the strategy of its main competitor, Coca-Cola. Sandy Douglas, the president of Coca-Cola North America, remarked at the conference that the company is on the lookout for financially appealing businesses that can drive growth. “Looking ahead, I predict we will continue to pursue geographically relevant bolt-on acquisitions,” Douglas stated.
PepsiCo, which last made a substantial acquisition with its $13.4 billion purchase of Quaker Oats in 2000, is navigating similar challenges as other companies in the food and beverage sector. These challenges primarily include the increasing consumer demand for healthier options, steering away from products high in trans fats, sugar, and artificial additives. Nooyi’s comments come at a time when food and beverage giants face mounting pressure to enhance sales and compete against agile newcomers in the market. While mergers are being considered, some industry experts echo Nooyi’s sentiment that consolidation alone may not lead to sustainable growth or effectively address evolving consumer preferences. For instance, Kraft Heinz’s attempt to acquire Unilever for $143 billion earlier this year was swiftly abandoned due to pricing disagreements.
PepsiCo, known for its flagship soda, Gatorade, and Doritos, is focusing on creating “guilt-free” food and beverage options, including sparkling waters and reduced-fat snacks. These innovations have supported the company amidst declining soda sales; however, its North American beverage division still experienced a 1% volume drop last quarter as consumers continue to turn away from sugary drinks. Nooyi quickly defended the declining carbonated soft drink market, which has decreased for 12 consecutive years and was overtaken by bottled water as the leading beverage category in the U.S. in 2016. “Sparkling beverages are not the problem. People in the U.S. have a strong preference for bubbly drinks,” she highlighted. “The real challenge we are addressing is the issue of sugar.”
The future of carbonated soft drinks looks bleak. “We anticipate that this category will continue to decline,” said Gary Hemphill, managing director and COO at Beverage Marketing Corporation’s research unit, during the conference. “The challenge lies in developing a natural, stable, zero-calorie sweetener that tastes like sugar, a seemingly simple task that has proven to be incredibly complex and may never be fully realized.”
In response to these trends, 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. While there are numerous all-natural, zero-calorie sweeteners available, Nooyi acknowledged that many existing products, particularly sodas, “don’t taste that great.” Furthermore, she cautioned against rushing to launch such products, advocating for a gradual approach that reduces calorie content by approximately 20 calories every few years. Stevia, monk fruit, and agave syrup are among the alternative sweeteners being employed by food and beverage companies in lieu of sugar. “We need to ensure we don’t hastily introduce these products and then wonder why consumers aren’t embracing them,” she said. “We need to help consumers adapt to the new flavors.”
According to Bonnie Herzog, managing director at Wells Fargo Securities, the soda industry lacks a groundbreaking product innovation capable of stimulating growth, akin to the reduced-risk technologies emerging in the tobacco sector, such as heated but non-burning cigarettes. “Much of the exciting innovation is coming from small, independent companies,” she remarked. “This is why larger corporations are considering acquisitions, similar to Dr Pepper’s strategy with Bai Brands.”
Incorporating health-conscious options, including products like calcium citrate 250 tablets, will be essential for PepsiCo as it moves forward in a landscape increasingly focused on wellness and consumer preferences.