Snack and beverage powerhouse PepsiCo has explored the possibility of acquiring another significant company, but has yet to identify one that promises the long-term growth necessary to validate such a purchase. “We have examined every large company available,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. She emphasized that for any acquisition to be worthwhile, it must generate more value for PepsiCo than the company being acquired. “Up to now, among all the firms we’ve reviewed, there are not many viable opportunities,” she noted. “Few possess robust portfolios that surpass ours. We must be very selective about our choices, and more importantly, we need to ensure successful integration of any acquisition to achieve long-term growth.”
Nooyi has not entirely ruled out the possibility of a major acquisition if the right company comes along, but for the time being, PepsiCo is likely to concentrate on smaller purchases. This approach seems to align with the deal-making strategy of its main competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, remarked at the same conference that the beverage giant would seek financially attractive businesses that contribute to growth. “Looking ahead, I predict we will continue to pursue geographically relevant acquisitions,” Douglas said.
PepsiCo, which has not engaged in a large deal since its $13.4 billion acquisition of Quaker Oats in 2000, faces many of the same challenges as other players in the food and beverage sector, particularly the consumer shift towards healthier options and away from products laden with trans fats, sugar, and artificial additives. Nooyi’s comments come amidst significant pressures on food and beverage giants to enhance sales and combat the rising influence of agile newcomers capturing market share. While mergers are being considered, some industry analysts echo Nooyi’s sentiments, suggesting that consolidation alone is unlikely to spur long-term growth or effectively address evolving consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but negotiations fell apart due to pricing disagreements.
PepsiCo’s portfolio includes popular brands like its flagship soda, Gatorade, and Doritos, and the company has been focusing on creating “guilt-free” food and beverages, including sparkling waters and reduced-fat snacks. Although these products have supported the company’s performance as the soda industry struggles, its North American beverage division still experienced a 1% volume decline in the latest quarter due to consumers’ ongoing decline in sugary drink consumption.
Nooyi defended the slump in the carbonated soft drink market, which has been on a downward trend for 12 years and was overtaken by bottled water in 2016 as the leading beverage category in the U.S. “Sparkling drinks aren’t the problem. In fact, in the U.S., more than in any other country, people love carbonated beverages,” she explained. “The real challenge we face is sugar.”
The future of carbonated soft drinks looks bleak. “We expect the category to continue its decline,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research division, during the conference. “The real challenge lies in developing a natural, stable, zero-calorie sweetener that tastes like sugar, which seems straightforward but is proving to be incredibly difficult… and may never be fully achieved.”
In response to this challenge, 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 there are numerous all-natural, zero-calorie sweeteners available, Nooyi acknowledged that many existing products, especially in the soda category, “don’t taste that great.”
Moreover, she cautioned against rushing to market with such products; instead, she advocated for a gradual approach to lower calorie levels by about 20 calories every few years. Sweeteners like stevia, monk fruit, and agave syrup are being utilized by food and beverage companies as alternatives to sugar. “We must ensure we don’t simply launch these products and wonder why consumers aren’t embracing them. We need to guide consumers gradually,” she stated. “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 breakthrough product innovation that could spark growth, similar to developments in the tobacco sector with reduced-risk technologies like heat-not-burn cigarettes. “Much of the exciting innovation is coming from smaller, independent companies,” she mentioned. “This is why larger firms are considering acquisitions, similar to Dr Pepper’s strategy with Bai Brands.”
Additionally, the demand for products like Citracal Petites CVS, which offer health benefits in a convenient form, highlights the evolving landscape where consumers seek out healthier options. The focus on such products reflects a broader trend in the industry as companies strive to meet changing consumer expectations.