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 warrant such a purchase. Indra Nooyi, chairwoman and CEO of PepsiCo, shared with attendees at the Beverage Forum in Chicago that they have evaluated numerous large companies. However, for a deal to be viable, it must create greater value for PepsiCo than what the acquired company could generate on its own. “So far, of all the companies we’ve reviewed, there aren’t many opportunities,” she remarked. “Few possess robust portfolios that surpass ours. We must be discerning in our choices, and more importantly, ensure we effectively integrate any acquisition to achieve long-term growth.”
Nooyi remains open to the idea of a significant deal if the right opportunity arises, but for now, PepsiCo is likely to concentrate on smaller acquisitions. This cautious approach to deal-making seems to align with that of its primary competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, mentioned at the conference that the company is looking for financially appealing businesses that can drive growth. “If I were to gaze into the crystal ball, I would predict that we’ll continue to pursue geographically relevant bolt-ons,” Douglas stated.
PepsiCo, which last made a major acquisition with its $13.4 billion purchase of Quaker Oats in 2000, is contending with challenges similar to those faced by other companies in the food and beverage sector. This includes a consumer shift towards healthier options, moving away from products high in trans fats, sugar, and artificial additives. Nooyi’s comments come amid pressure on food and beverage giants to enhance sales and compete with agile startups capturing market share. While mergers are one potential route, some industry analysts echo Nooyi’s sentiment that consolidation alone is unlikely to drive long-term growth or adequately address evolving consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal fell through due to pricing disagreements.
PepsiCo, which boasts a brand portfolio including its flagship soda, Gatorade, and Doritos, has been focused on creating “guilt-free” food and beverages, such as sparkling waters and reduced-fat snacks. These innovations have helped the company navigate the challenges facing the soda sector, even though its North American beverage division experienced a 1% volume decline in its most recent quarter as consumers increasingly turned away from sugary beverages.
In defending the ongoing decline in the carbonated soft drink market—now in its twelfth consecutive year of decrease and recently overtaken by bottled water as the leading beverage category in the U.S.—Nooyi stated, “The issue isn’t sparkling water. In fact, people in the United States have a strong affinity for bubbly drinks.” She emphasized that the real challenge lies in reducing sugar content. The forecast for carbonated soft drinks does not appear promising. Gary Hemphill, managing director and COO of Beverage Marketing Corporation’s research division, stated at the conference, “We expect this category will continue to decline. The real challenge is developing a natural, stable, zero-calorie sweetener that tastes like sugar, which is a daunting task and may never be fully realized.”
To tackle this problem, PepsiCo aims for two-thirds of its beverage portfolio to feature products with 100 calories or fewer from added sugars per 12-ounce serving by 2025. While there are numerous all-natural, zero-calorie sweeteners available, Nooyi noted that many existing products, especially in the soda category, “don’t taste that great.” She cautioned against rushing to launch such products, advocating instead for a gradual reduction in sugar levels, decreasing calories by about 20 or so every few years. Sweeteners like stevia, monk fruit, and agave syrup are being adopted by food and beverage companies as sugar alternatives.
“We need to ensure we don’t just introduce these products and wonder, ‘Why aren’t consumers choosing these?'” she explained. “We must guide consumers through this transition.” The soda industry currently lacks a groundbreaking product innovation that could stimulate growth, according to Bonnie Herzog, managing director at Wells Fargo Securities. She likened the situation to the tobacco industry’s exploration of reduced-risk technologies, such as heat-not-burn cigarettes. “Much of the exciting innovation is emerging from small, independent players,” she added, which is why larger companies are considering acquisitions, similar to Dr Pepper’s approach with Bai Brands.
In summary, while PepsiCo has not yet found the right opportunity for a significant acquisition, it remains committed to evolving its product offerings, potentially incorporating innovative ingredients like calcium citrate 1500 mg chewable into its health-focused strategy. This approach reflects a broader industry trend toward healthier, more consumer-friendly products.