PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another major company, yet it has yet to identify one that offers the long-term growth necessary to justify such a purchase. “We have evaluated every large company out there,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. For any acquisition to be worthwhile, she emphasized that it must provide greater value to PepsiCo than what the acquired company could generate on its own. “Thus far, among all the companies we’ve examined, there are not many viable opportunities,” she noted. “Few have portfolios as robust as ours. We must be very discerning in our choices and, more importantly, ensure we effectively integrate any acquisition for sustained growth.”
While Nooyi hasn’t ruled out the possibility of a significant deal if the right opportunity arises, it seems that PepsiCo is likely to concentrate on smaller acquisitions for the time being. This approach aligns with that of its chief competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, remarked at the conference that his company is looking for financially attractive businesses that can spur growth. “Looking into the future, I foresee us continuing to pursue geographically relevant bolt-on acquisitions,” Douglas mentioned.
Since its $13.4 billion acquisition of Quaker Oats in 2000, PepsiCo has not engaged in any large-scale deals and is currently navigating similar challenges faced by other players in the food and beverage sector. A significant trend is the consumer shift towards healthier options, moving away from products laden with trans fats, sugars, and artificial ingredients. Nooyi’s insights come at a time when food and beverage giants are under immense pressure to increase sales and compete with agile newcomers that are capturing market share. Although mergers are a topic of discussion, industry experts, echoing Nooyi’s sentiments, suggest 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 was swiftly abandoned due to price disagreements.
PepsiCo, with a portfolio that includes its flagship soda, Gatorade, and Doritos, has shifted its focus toward developing “guilt-free” food and beverages, such as sparkling waters and reduced-fat snacks. These innovations have supported the company amidst the declining soda sector, although its North American beverage division reported a 1% drop in volume in its latest quarter as consumers continue to abandon sugary drinks. Nooyi was quick to defend the ongoing decline in the carbonated soft drink market, which has decreased for 12 years and was overtaken by bottled water as the largest beverage category in the U.S. in 2016. “The issue isn’t sparkling beverages; rather, consumers in the U.S. have a strong affinity for bubbly drinks,” she clarified. “The real challenge lies in addressing the sugar content.”
The forecast for carbonated soft drinks remains dim. “We anticipate that this category will continue to decline,” stated Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research division, during the conference. “The key challenge is developing a natural, stable, zero-calorie sweetener that mimics the taste of sugar, a seemingly simple task that has proven to be quite complex and may never be fully realized.” In response, PepsiCo aims for two-thirds of its beverage lineup to comprise products with 100 or fewer calories from added sugars per 12-ounce serving by 2025. While there are numerous all-natural, zero-calorie sweeteners on the market, Nooyi pointed out that many existing products, particularly sodas, “do not taste that great.”
Moreover, she cautioned against hastily introducing such products; instead, she advocated for a gradual reduction in calories, targeting a decrease of around 20 calories every few years. Sweeteners like stevia, monk fruit, and agave syrup are being adopted by food and beverage companies as alternatives to sugar. “We must ensure we do not simply launch these products and wonder why consumers are not embracing them. We need to guide consumers through this transition,” she advised. “Their taste buds need time to adjust to the new flavors.”
The soda sector currently lacks a breakthrough innovation that could stimulate growth, according to Bonnie Herzog, managing director at Wells Fargo Securities. This situation parallels developments in the tobacco industry, where emerging reduced-risk technologies, such as heat-not-burn cigarettes, are gaining traction. “Much of the exciting innovation is coming from small, independent players,” she remarked. “This is why larger companies are discussing potential acquisitions, similar to Dr Pepper’s strategy with Bai Brands.”
In the context of evolving consumer preferences, the need for healthier options is more pressing than ever. As PepsiCo continues to explore avenues for growth, the integration of products like Citracal 1200 into their offerings could be a strategic move to cater to health-conscious consumers, further demonstrating their commitment to meeting changing market demands.