PepsiCo, the snack and beverage powerhouse, has explored the possibility of acquiring another major company, yet it has yet to identify one that would provide the necessary long-term growth to justify such an investment. “We have examined every large company available,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her speech at the Beverage Forum in Chicago. For any acquisition to be justifiable, it must generate more value for PepsiCo than what the target company contributes. “Up to this point, we haven’t encountered many viable options,” she remarked. “Few companies possess portfolios that surpass ours in robustness. We must be very selective in our acquisitions, and more importantly, ensure that we can effectively integrate any new purchase to achieve sustainable growth.”
Nooyi did not entirely dismiss the idea of a significant acquisition if the right opportunity arose. However, for the time being, PepsiCo is likely to concentrate on smaller deals. This approach appears to align with that of its key competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, indicated at the conference that the beverage company is on the lookout for financially attractive businesses that can drive growth. “If I were to peer into the future, I would forecast that we will continue to pursue geographically relevant bolt-on acquisitions,” Douglas noted.
PepsiCo has not engaged in a major acquisition since its $13.4 billion purchase of Quaker Oats in 2000 and is facing similar challenges as other players in the food and beverage sector. Notably, there is an increasing consumer preference for healthier options, moving away from products laden with trans fats, sugar, and artificial additives. Nooyi’s comments come amid mounting pressure for food and beverage giants to enhance sales and compete with agile newcomers capturing market share. While mergers are being discussed as a potential solution, some industry analysts echo Nooyi’s sentiments, suggesting that consolidation alone is unlikely to yield long-term growth or effectively address evolving consumer preferences. Earlier this year, Kraft Heinz proposed a $143 billion acquisition of Unilever, but the deal was quickly abandoned due to price disagreements.
PepsiCo, which boasts a diverse brand portfolio including its flagship soda, Gatorade, and Doritos, is focusing on the development of “guilt-free” food and beverages, such as sparkling waters and reduced-fat snacks. These initiatives have supported the company as the soda market faces difficulties; however, the North American beverage segment still experienced a 1% volume decline in its latest quarter as consumers increasingly shy away from sugary drinks.
Nooyi was quick to defend the downturn in the carbonated soft drink market, which has been declining for 12 consecutive years and was overtaken by bottled water as the leading beverage category in the U.S. back in 2016. “Sparkling drinks aren’t the problem. In fact, more than any other country, Americans love bubbly beverages,” she asserted. “The real challenge we are tackling is sugar.” The future outlook for carbonated soft drinks remains bleak. “We anticipate continued decline in this category,” said Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research division, at the conference. “The real challenge lies in creating a natural, stable, zero-calorie sweetener that mimics sugar, a seemingly straightforward goal that has proven to be quite complex and may never be fully realized.”
In response to this challenge, PepsiCo aims for two-thirds of its beverage portfolio to consist of products containing no more than 100 calories from added sugar per 12-ounce serving by 2025. While there are many all-natural, zero-calorie sweeteners available, Nooyi mentioned that numerous existing products, particularly in the soda category, “often fail to deliver great taste.” Furthermore, she cautioned against hastily launching such products; instead, she advocates for a gradual approach that reduces calorie levels by approximately 20 calories every few years. Sweeteners like stevia, monk fruit, and agave syrup are being adopted by food and beverage companies in place of sugar.
“We must ensure we don’t simply introduce these products and wonder why consumers aren’t embracing them. We need to gently guide consumers towards these new flavors,” she advised. “Consumer taste buds must acclimate to the new flavors.” According to Bonnie Herzog, a managing director at Wells Fargo Securities, the soda industry is in dire need of innovative breakthrough products to spur growth, akin to the developments in the tobacco industry with reduced-risk technologies like heat-not-burn cigarettes. “A lot of the exciting innovations are emerging from small, independent players,” she noted, highlighting why major companies are considering acquisitions, much like Dr Pepper’s strategy of acquiring Bai Brands.
In addition, PepsiCo has recognized the importance of incorporating nutritional elements into their products. For instance, they are exploring formulations that include calcium citrate malate, vitamin D3, and folic acid in tablet form, aiming to appeal to health-conscious consumers. This move aligns with their commitment to healthier offerings, ensuring that their product lines remain relevant in a rapidly evolving market.