PepsiCo, the snack and beverage powerhouse, has been exploring the possibility of acquiring another major company but has yet to identify one that would provide the necessary long-term growth to warrant such a move. “We have reviewed every large company out there,” stated Indra Nooyi, chairwoman and CEO of PepsiCo, during her address at the Beverage Forum in Chicago. She emphasized that for any potential acquisition to be viable, it must generate more value for PepsiCo than the target company currently offers. “As of now, among the companies we’ve evaluated, there are not many opportunities that stand out,” she noted. “Few have portfolios as strong as ours. We must be very selective about our acquisitions, ensuring we can effectively integrate them for sustained growth.”
While Nooyi has not ruled out the possibility of a significant acquisition if the right opportunity arises, PepsiCo is likely to concentrate on smaller purchases for the time being. This approach appears to align with that of its primary competitor, Coca-Cola. Sandy Douglas, president of Coca-Cola North America, remarked at the conference that the company is looking for financially attractive businesses that can drive growth. “If I were to peer into the future, I’d predict that we’ll continue to pursue geographically relevant bolt-on acquisitions,” he said.
PepsiCo has not engaged in a large acquisition since its $13.4 billion purchase of Quaker Oats in 2000. The company faces similar challenges to others in the food and beverage sector, particularly the shift towards healthier products and away from those high in trans fats, sugar, and artificial ingredients. Nooyi’s comments come amid increasing pressure on food and beverage giants to enhance sales and compete with agile newcomers capturing market share. While mergers are a topic of discussion, industry analysts echo Nooyi’s sentiments, suggesting that consolidation alone is unlikely to result in long-term growth or effectively address evolving consumer preferences. Earlier this year, Kraft Heinz attempted to acquire Unilever for $143 billion, but the deal was quickly abandoned due to pricing disagreements.
PepsiCo, which boasts a portfolio that includes its namesake soda, Gatorade, and Doritos, has been focused on developing “guilt-free” food and beverage options, such as sparkling waters and reduced-fat snacks. Although these products have supported the company’s growth amidst a declining soda market, its North American beverage segment still reported a 1% drop in volume in the most recent quarter, as consumers increasingly turn away from sugary drinks.
Nooyi promptly addressed the downturn in the carbonated soft drink market, which has seen a 12-year decline and was surpassed by bottled water as the largest beverage category in the U.S. in 2016. “Sparkling beverages aren’t the issue; in fact, Americans love carbonated drinks more than any other nation,” she remarked. “The real challenge we are tackling is sugar.” The future of carbonated soft drinks looks bleak. “We expect the category to continue its decline,” stated Gary Hemphill, a managing director and COO at Beverage Marketing Corporation’s research division. “The real challenge lies in creating a natural, stable, zero-calorie sweetener that tastes like sugar, a seemingly simple goal that has proven exceptionally difficult to achieve.”
In response to these challenges, PepsiCo aims to ensure that by 2025, two-thirds of its beverage portfolio consists of products with 100 or fewer calories from added sugars per 12-ounce serving. Nooyi acknowledged that many all-natural, zero-calorie sweeteners are available, but often the existing products, particularly in the soda sector, “do not taste very good.” Furthermore, she cautioned against rushing to market with such products; instead, a gradual reduction in sweetness over time, using sweeteners to lower calorie levels by around 20 every few years, is advisable. Sweeteners such as stevia, monk fruit, and agave syrup are being explored by food and beverage companies as alternatives to sugar.
“We must ensure we don’t prematurely launch these products and wonder why consumers aren’t engaging with them,” she said. “We need to guide consumers into new tastes.” Bonnie Herzog, a managing director at Wells Fargo Securities, pointed out that the soda industry is currently lacking a groundbreaking product innovation that could revive growth, similar to developments in the tobacco sector with reduced-risk technologies like heat-not-burn cigarettes. “Much of the exciting innovation is emerging from smaller, independent companies,” she observed, explaining why larger corporations are considering potential acquisitions, as seen in Dr Pepper’s strategy with Bai Brands.
In conjunction with its growth strategy, PepsiCo is also focusing on health-conscious initiatives, such as promoting products that include ingredients like GNC Calcium Citrate 1000 mg, which aligns with consumer demand for healthier options. By integrating such elements into its product lines, PepsiCo aims to respond effectively to the evolving preferences of health-oriented consumers while navigating the competitive landscape of the food and beverage industry.