Amid falling sales and rising demand for guilt-free products, PepsiCo (PEP, Financial) is in talks to acquire Vita Coco, the global leader of coconut water. The company has offered less than $1 billion for the purchase of Vita Coco. Undoubtedly, this vital acquisition would not only expand PepsiCo’s portfolio but also support the beverage company’s stagnant sales and bottom line.
Vita Coco was founded in 2004 in New York and runs operations in 30 nations. It has become a well-established U.S. brand with a staggering market share of 26% and a market worth of $2.5 billion.
Looking back
Vita Coco isn’t PepsiCo’s first attempt to acquire a coconut water company. The beverage giant already owns Naked-branded coconut water. PepsiCo bought an extensive amount of O.N.E. coconut water in 2010 which was wholly acquired in 2012. But O.N.E. coconut water couldn’t create a strong impact on customers and has lagged behind Vito Coco and Coca-Cola’s (KO, Financial) Zico. The company’s latest acquisition in the healthy beverage sector happens to be KeVita, a probiotic beverage company. This was done to strengthen and expand its soft drinks business so it can tap the growing market of health-conscious customers.
Carbonated soft drinks segment softens
Consumers are looking for healthy options and are cautious about the ingredients of soft drinks like artificial flavoring and sugar content. This led to a gradual decrease in demand for carbonated soft drinks (CSD) and growing demand for alternatives in the form of good-for-you products and bottled water.
PepsiCo wasn’t the sole player whose sales were adversely affected by the declining consumption of carbonated soft drinks. Coca-Cola and Dr Pepper Snapple (DPS, Financial) witnessed declining sales in the CSD category. PepsiCo’s CSD volumes plunged 1% each in 2014 and 2015 whereas the same dropped 2% in 2016. The company now wants to offer products with optimum sugar content and less sodium to attract customers and improve the bottom line.
How things can turn around for PepsiCo if the Vita Coco deal goes through
PepsiCo is a victim of declining sales as consumers are opting for healthy beverages and reducing consumption of carbonated soft drinks. Adding Vita Coco would help the company lift its declining sales.
PepsiCo also made a statement claiming that sales of its "everyday nutrition" products would surpass all the other products by the year 2015. As far as the beverage space is concerned, coconut water has gained traction and is a fast-growing segment, currently ruled by Vita Coco.
Vita Coco is the leader in the healthy beverage space. Vita Coco already has a distribution partnership with Dr Pepper Snapple. Furthermore, Vita Coco’s rival Zico was acquired by the world’s largest beverage company Coca-Cola. Acquiring Vita Coco would give PepsiCo an opportunity to expand its healthy beverage profile and introduce other innovative products in this segment that would aid the company’s sales volume and turnover.
Last word
PepsiCo’s annual turnover amounts to more than $60 billion. Given the fact that the demand for coconut water continues to go up, Vita Coco becomes a source of attraction for many beverage players. The worldwide coconut water market looks resilient and is anticipated to grow at a CAGR of 21% and surpass the $5 billion mark by 2021.
PepsiCo has taken a major step toward Vita Coco’s acquisition and its efforts to transform into a healthier company will bear fruit in the future.
Disclosure: I do not hold any position in the stocks mentioned in this article.
