logo
‘Functional soda' seen in rude health as PepsiCo takes plunge

‘Functional soda' seen in rude health as PepsiCo takes plunge

Yahoo21-03-2025

If anyone needed convincing that, in the US at least, 'better-for-you' soda isn't a flash in the pan, perhaps PepsiCo's latest acquisition will have persuaded them.
On Monday (17 March), just under 72 hours after Bloomberg reported PepsiCo was in late-stage talks to buy US prebiotic soda business Poppi, the US food and drinks giant announced a deal worth just under $2bn.
Poppi, formerly known as Mother Beverage, was set up in 2015 and, after receiving funding on US business pitch TV show Shark Tank three years later, relaunched under its current brand in 2020.
Since then, Poppi, co-founded by Allison Ellsworth and her husband Stephen, has built what has become one of the more recognisable names in the growing market for 'better-for-you' sodas in the US.
Robert Moskow, a beverage-industry analyst at US investment bank TD Cowen, says Poppi generated sales of just over $391m in tracked channels in the last 52 weeks. A company spokesperson says Poppi ran up annual sales of 'north of $500m' in 2024. Alongside Olipop, Poppi, with its low-calorie and low-sugar sodas in 15 flavours, has become a brand synonymous with 'healthier' soda in the US.
The purchase of Poppi is PepsiCo's second $1bn-plus acquisition in six months and the food-and-drinks major's latest attempt to tap into a growing part of the market through M&A.
Speaking at the annual CAGNY investment conference last month, PepsiCo chairman and CEO Ramon Laguarta called out 'functionality' and 'multicultural' as two product trends that would be central to the company's investment strategy – and its recent deal-making underlines that thesis. In October, the Lay's snacks maker agreed to buy Mexican-American snacks maker Siete Foods for a fee of $1.2bn.
'More than ever, consumers are looking for convenient and great-tasting options that fit their lifestyles and respond to their growing interest in health and wellness,' Laguarta said on Monday. 'Poppi is a great complement to our portfolio transformation efforts to meet these needs.'
After attending last week's Expo West trade show in California, Moskow highlighted better-for-you soda as an area the major players in conventional fizzy drinks needed to focus on. 'We believe carbonated soda leaders will need to take this segment of the market more seriously in 2025 rather than assuming it is a fad,' Moskow said at the time and, this week, he praised PepsiCo's move.
'We believe 'functional soda' is becoming a mainstream segment of the market with sustainable appeal,' he said on Monday.
The transaction includes $300m of anticipated cash tax benefits for a net purchase price of $1.65bn, PepsiCo said. The deal also features an additional potential 'earnout consideration' based on whether certain undisclosed 'performance milestones' are reached, the company added.
Barclays analyst Lauren Lieberman says the price tag works out at around four times Poppi's sales in the last 12 months, which, she says, 'strikes us as more akin to a beauty valuation'.
However, Lieberman adds: 'We see a lot of similarities between the fast-growth, emerging brand landscape of each industry. Poppi boasts both scale and credibility with consumers (the latter of which really coming to light in our data work), which screens particularly attractive, in our view, when considering the path for an internal build would be long and uncertain.'
Not all consumers have been happy, however. Poppi confirmed this week it had settled a lawsuit in the US filed by consumers who claimed they were misled by the company (Poppi said it 'acknowledges no fault, liability, or wrongdoing').
The settlement will allow Poppi and PepsiCo to look forward. For PepsiCo, it's a chance to buy into a burgeoning market and attempt to grow the brand further. The company had planned to launch a similar soda under its Soulboost brand (which hit the market four years ago with a range of sparkling waters including 'functional' ingredients like L-theanine and panax ginseng) but decided against the move (it's said the early indications for the new product were not positive) and pounced for Poppi instead.
'A frequent strategic dilemma when entering a new segment or category is whether to build or buy your way in,' David Clark, a former General Mills executive and founder of the Avenir Strategies consultancy, says. 'Buying typically involves paying a premium based on anticipated growth derived from past performance – the more solid the track record, the higher the premium. Building avoids this purchase premium but has a slow build and a high failure rate, circa 80%."
Last month, Coca-Cola introduced its first prebiotic soda line, launching the Simply Pop brand in the US.
Simply Pop, initially set to go on sale 'at retail in select regions' and via Amazon, is targeted at a product set that includes brands such as Poppi and Olipop.
'Of course, Coke may also be pursuing acquisitions ... but these initial moves suggest that Coke and Pepsi may see the BFY soda opportunity and urgency differently. It'll be interesting to see how this unfolds,' Clark says.
Last month, Olipop was valued at $1.85bn after raising $50m in a Series C funding round, led by JP Morgan Private Capital's Growth Equity Partners.
In 2023, CNBC quoted Ben Goodwin, Olipop's CEO, as saying PepsiCo and Coca-Cola had made an approach about a potential sale.
Olipop said the new cash injection marked its 'final anticipated round of equity financing', after becoming profitable 'in early 2024'.
The company, however, also confirmed that it fell short of its $500m sales target projected in May, generating over $400m in revenue for fiscal year 2024.
'The other big player in this space is Olipop and we fully expect them to get acquired by one of PepsiCo's rivals in the near term,' Richard Wyborn, a partner at UK-based consultancy Food Strategy Associates, says. 'Interest in prebiotics and gut health isn't going anywhere and is a trend we expect to appear in more and more categories in the future.'
In the main, PepsiCo's acquisition of Poppi is seen by industry watchers as a deal that could benefit both sides. PepsiCo has snapped up a significant player in a buoyant product segment – and a segment that's expected to continue to grow.
Meanwhile, Poppi gets the benefit of PepsiCo's distribution muscle. It wouldn't be a massive surprise if we saw, perhaps with some tweaks to recipes and flavours, Poppi products in more international markets in the months ahead.
'They need to ensure they let management continue to do what they've been doing – if it ain't broke don't fix it – but also ensure that they don't turbo charge the growth too much,' Wyborn says. 'Distribution should be built up gradually all the while ensuring velocities remain high.'
However, not everyone is sold on the prospects for such functional sodas.
PepsiCo's scale will undoubtedly help Poppi in the medium term and this type of bolt-on acquisition has delivered the best ROI in the FMCG industry. However, I remain sceptical about the long-term viability of these sodas,' Ivan Torossian, a consulting director at GlobalData, Just Drinks' parent, says.
'At $2.5–$3 per can, Poppi lacks the 'instant gratification' factor. Red Bull gives you instant wings and electrolyte beverages instant hydration but prebiotics? Consumers too concerned with sugar and gut might as well stick to water for a quarter of the cost. Is there really enough differentiation to sustain Poppi's positioning?'
"'Functional soda' seen in rude health as PepsiCo takes plunge" was originally created and published by Just Drinks, a GlobalData owned brand.
The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.

Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

Euro Could Reach $1.40 Within Two Years: Macro Hive
Euro Could Reach $1.40 Within Two Years: Macro Hive

Bloomberg

time26 minutes ago

  • Bloomberg

Euro Could Reach $1.40 Within Two Years: Macro Hive

Macro Hive CEO Bilal Hafeez says the euro could reach $1.40 within one or two years. "There has to be an outlet somewhere for dollar weakness," Hafeez tells Bloomberg Television. FX options show growing appetite for medium-term euro upside. Markets now see nearly a 1-in-2 chance of the single currency trading above $1.20 by the end of 2027, a far cry from a year ago where there was talk of parity. (Source: Bloomberg)

Platinum Chases Gold Hitting A Four Year High Of $1218/oz
Platinum Chases Gold Hitting A Four Year High Of $1218/oz

Forbes

time36 minutes ago

  • Forbes

Platinum Chases Gold Hitting A Four Year High Of $1218/oz

Platinum has returned as a precious metals star, delivery fat profits as investors rotate funds out of gold, the sector leader. Platinum's sister metal palladium is also rising strongly. Both platinum and palladium seem likely to continue outperforming as a decade of oversupply gives way to signs of a shortage developing. A miner handles a piece of raw platinum ore in South Africa. Photographer: Waldo Swiegers/Bloomberg Over the past month the platinum price has risen by 24% to a four-year high of $1218 an ounce, while palladium is up 13% at $1077/oz. Gold, on the other hand, has risen by 1.5% to $3205/oz, though that modest move needs to be seen against a background of three spectacular years of soaring demand and an 83% increase from a price around $1810/oz in June 2022. The platinum rebound has been a long time coming though some investors might remember that it wasn't that long ago when the platinum price was comfortably higher than gold. In mid-2008 an ounce of platinum cost $2068, more than double gold which was selling for $903/oz. Demand for platinum and palladium has traditionally been driven by a combination of jewelry and industrial uses, especially for in the catalytic converters of internal combustion engines where they play a role in minimising the emission of environmentally damaging nitrous oxide. But in 2015 the platinum market crashed after it was revealed that the big German car maker Volkswagen had been falsifying exhaust system measurement sparking a scandal dubbed Dieselgate. Within months the platinum price had crashed to just $804/oz. Palladium, which is the preferred metal in the exhausts of gasoline powered vehicles, also fell but not as steeply. Further weighing on the prices of platinum and palladium has been the rise in sales of electric vehicles, which do not require a catalytic converter – though hybrid electric cars do, and in some case their converters require a heavier coating of platinum or palladium. A General Motors catalytic converters. (Photo by Reuter Raymond/Sygma via Getty Images) But the major factor in this year's platinum revival is as simple as the run-down of stockpiles which date back to the Dieselgate days meaning that newly mined supply is struggling to keep up with demand. Mines in South Africa, the major source of platinum, have cut back during the years of low prices, as have the palladium mines of Russia which are the primary source of that metal. A measure of the changing fundamentals of the platinum market came last month in a report from the World Platinum Investment Council (WPIC) which forecast a supply deficit this year of 966,000oz, the third consecutive deficit year. More importantly, the latest deficit could put pressure on the platinum price because the WPIC is forecasting that the stockpile will shrink to 2.16 million ounces, enough to meet just three months of demand. The sudden shift in the platinum market, which has really been 10-years in the making, has sparked a sharp increase in the prices of platinum miners with the biggest beneficiary being Valterra Platinum, the renamed Anglo American Platinum. Since listing earlier this month on the London Stock Exchange Valterra shares have followed the platinum price, up 24%. Smaller platinum stocks have done better. Zimplats, a Zimbabwe-focused miner controlled by South Africa's Impala Platinum has risen by 60% over the past month while Australian-listed Southern Palladium, which is planning to develop a new platinum mine in South Africa is up 120%.

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into the world of global news and events? Download our app today from your preferred app store and start exploring.
app-storeplay-store