PepsiCo pivots away from sugary drinks with $3.2B SodaStream buy
- PepsiCo is purchasing sparkling water maker SodaStream for $3.2 billion, or $144 per share, as the beverage giant minimizes its dependence on sugary drinks. CNBC said PepsiCo was the only bidder for SodaStream.
- Indra Nooyi, PepsiCo's CEO who announced plans to retire earlier this month, said the purchase aligns with the New York company's long-term "philosophy of making more nutritious products while limiting our environmental footprint."
- PepsiCo said SodaStream would benefit from its strong distribution capabilities, global reach, research and development, design and marketing expertise. Meanwhile, the maker of Tropicana, Mountain Dew, Gatorade and its namesake soda would gain a "differentiated and unique product range."
PepsiCo's outgoing CEO Indra Nooyi is making one last major acquisition before her retirement, effectively doubling-down on her strategy of moving the company away from sugary drinks — a major focus of her time overseeing the snack and beverage giant. In her 12 years as CEO, Nooyi touted the need to reposition the company into better-for-you products that reflect changing consumer trends away from sugary drinks and into healthier teas, waters and juices.
In recent years, PepsiCo has introduced drinks like LifeWTR bottled water; acquired probiotics beverage manufacturer KeVita, a maker of kombucha and vinegar tonics; introduced new versions of its iconic Gatorade brand including an organic variety; and most recently launched sparkling water brand bubly to challenge LaCroix. CNBC's Jim Cramer said PepsiCo was the only bidder for SodaStream.
The purchase of SodaStream reflects the trends taking place across the food and beverage space. In addition to the growing demand for healthier drinks, consumers are purchasing more of their groceries online. Brands and retailers may be looking to sell smaller, lighter, easier-to-ship versions of products. With the possibility of lightweight flavor packets allowing consumers to create PepsiCo's iconic sodas at home, this deal better positions the drink manufacturer to grab a bigger portion of that market, forecast to reach $100 billion by 2022. Pepsi has sold caps for these machines since 2015, fueling rumors that a takeover was imminent.
It also cements the public's desire to throw weight behind companies that are sustainable and willing to invest publicly in helping the environment. With its product created in a reusable plastic bottle, SodaStream ditches some of the waste that's produced to get a traditional beverage to market — including the cans, bottles, cardboard packaging, shipping and manufacturing costs. The company has played up its eco-friendly business plan in controversial ad campaigns.
Sparking water is the fastest-growing segment in the bottled water category, according to the Beverage Marketing Corporation. Consumers still crave the bubbles and flavor found in sodas, but increasingly shun the sugar. The sparkling water category grew by 70% between 2011 and 2016, according to Euromonitor International, and is on pace to hit $3.1 billion in sales by 2022.
Brian Todd, president of The Food Institute, told Food Dive in emailed comments that this purchase moves Pepsi closer to where it wants to be — at the forefront of what's new and now in the industry.
“PepsiCo’s purchase of Soda Stream is another example of how larger CPG companies in the U.S. are buying innovation," he wrote. "The $3.2 billion acquisition comes as consumers are looking for sugary drink alternatives and gives PepsiCo a technological foothold in the appliance sector, perhaps hoping to hit a home run similar to Keurig single serve coffee makers. PepsiCo previously bought KeVita in 2016, a maker of probiotics and kombucha beverages, to expand its presence in the healthy drink segment. The company is also looking to step up innovation on its own turf, launching “The Hive” last week, a new incubator program that will focus on emerging brands.”
Bonnie Herzog, a senior analyst for Wells Fargo Securities, said in emailed comments that the SodaStream deal should increase PepsiCo's shift toward healthier options, complement the company’s growing water portfolio and give the beverage maker a "foothold in the in-home beverage market, which we think could drive revenue synergies."
Still, Herzog questioned the long-term benefits of the deal.
"We can’t help but see parallels to (Coca-Cola's) decision to acquire a stake in Green Mountain in 2014, and question whether this deal – which also brings together a large consumer packaged goods company and an in-home beverage maker – will do much to solve PEP’s ongoing struggle to improve volumes in its North American Beverage segment (which, despite sequentially improving in Q2, remain weak)," she said. "In short, we remain concerned about challenges facing (PepsiCo's) core business."
The deal also has the potential to get PepsiCo into the alcohol business. Last year, SodaStream introduced sparkling wine concentrate in the German market. Consumers who bought the Sparkling Gold concentrate off of the company's online shop could make a 10% ABV beverage that supposedly tastes similar to a riesling.
The SodaStream deal is the latest major transaction to take place among the big soda giants this year.
Dr Pepper Snapple merged with single-serve home brewer Keurig Green Mountain, creating a new beverage giant with $11 billion in combined annual revenues that bring the popular home coffeemaker and Bai, 7UP, Sunkist and A&W under one roof. Last week, Coca-Cola acquired a minority stake in BodyArmor for an undisclosed amount with an opportunity to fully acquire the premium line of sports performance and hydration drinks in the future. The stake will allow Coca-Cola to better challenge Gatorade with a healthier product line and roster of well-known athletes tied to the brand.
As tastes change, sugary drinks will always have a place in consumption habits, but increasingly the push to embrace healthier, low-calories drinks is forcing Coca-Cola, PepsiCo and Keurig Dr Pepper to innovate or look outside for more deals — a trend that is unlikely to abate anytime soon.
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