PepsiCo has announced its acquisition of Poppi, the rapidly growing prebiotic soda brand, in a deal valued at $1.95 billion. This move signals Pepsi’s growing interest in the functional beverage space, as consumers increasingly shift toward gut-friendly and health-conscious drinks. The acquisition includes $300 million in expected cash tax benefits for Pepsi, effectively bringing the net purchase price to $1.65 billion. Pepsi has also agreed to make additional payouts if Poppi can meet certain performance metrics.
What is Poppi?
Poppi, originally known as Mother Beverage, is an American brand of prebiotic soda known for its “gut healthy” approach to the carbonated-beverage market. It was founded in 2015 by Allison and Stephen Ellsworth from their kitchen in Texas. Allison began experimenting with the hopes of finding a palatable way to incorporate apple cider vinegar into her diet by blending it with fruit juices and sparkling water to make a more enjoyable beverage. The company’s big break came in 2018 with their appearance on Shark Tank where they managed to secure a $400,000 investment from Rohan Oza which went into rebranding and in 2020, Mother Beverage became Poppi to attract more youth and a modern audience.
Why is Poppi a good investment for PepsiCo?
Poppi has become the largest gut-health drinks company in the US, generating more than $500m in annual revenue. Its sales in retail stores have increased by 163% in the year ending on January. It is also projected that the gut soda segment will reach $2bn in sales by 2029 according to Duane Stanford, editor and publisher of trade publication Beverage Digest.
Pepsi’s Chief Executive, Ramon Laguarta noted that “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. Poppi is a great complement to our portfolio transformation efforts to meet these needs”. Poppi’s use of prebiotics, fruit juice and apple cider vinegar, partnered with a wide range of flavours and the fact that its drinks have less than 5 grams of sugar per serving, makes it very attractive to consumers of ‘healthier products’.
Sean Harapko, leader of Americas supply chain transformation and global supply chain RPA at EY noted that beverage behemoths like PepsiCo have the massive distribution networks that these upstart soda brands lack, demonstrating further the benefits of this acquisition.
What is next for ‘Gut Sodas’?
Last month, Pepsi’s rival Coca-Cola began introducing a competing product named ‘Simply Pop’ into US supermarkets (which is an extension of its Simply fruit juice line), highlighting its popularity with Gen-Z and millennial consumers. As mentioned by Duane Stanford, we are witnessing “gut sodas graduating to the big leagues” with Cokes launch and Pepsi’s acquisition. However, with the arrival of the beverage industry giants, competition is most definitely going to increase. Stanford added that “the question long term is whether the category becomes watered down with so many recent entries into the market”.