PepsiCo (PEP) is best known for its ubiquitous carbonated cola beverage, Pepsi, and its rivalry with Coca-Cola. (KO). But what most people don't know is that the company's expansion goes far beyond beverages—a strategy that began in 1965. That year, PepsiCo was born out of a merger between Pepsi-Cola and snack-food company Frito-Lay. Since then, it's grown into a global leader, providing packaged foods, snacks, and beverages with a market capitalization of $164.2 billion. In 2019, the company posted an annual net income of $7.4 billion on annual revenue of $67.2 billion, with food accounting for 54% of the company's sales.
For more than 50 years, Pepsi has used acquisitions to expand its core businesses, constructing a large portfolio of popular brands, including potato chip brands (Doritos, Fritos, Lay's, Ruffles, and Tostitos), Pearl Milling Co. (formerly Aunt Jemima) table syrup, Cap'n Crunch and Life cereal brands, Quaker Chewy granola bars, bottled-water brand Aquafina, sports-drink brand Gatorade, and soft-drink brands 7UP and Mountain Dew. Pepsi continues to add to that list. In March 2020, the company announced plans to acquire Rockstar Energy for $3.85 billion. The acquisition is part of a strategic pivot toward the energy-drink market as soda consumption in the U.S. wanes.
Below, we look at five of Pepsico's most important acquisitions in more detail. Pepsico breaks out revenue and profit for Frito-Lay and Quaker Oats but does not do so for the other three deals listed below.
- PepsiCo began making strategic acquisitions beyond the beverage market in 1965 when it purchased Frito-Lay.
- In 2001, Pepsi acquired Quaker Oats for $13.8 billion.
- Pepsi purchased Tropicana in 1998 in what was its largest acquisition to date.
- The company went into a joint venture with Sabra Dipping Company in 2008.
- The financial terms of Pepsi's 2007 acquisition of Naked Juice were not disclosed.
- Type of Business: Snack Food Producer
- Acquisition Price: approximately $213 million
- Acquisition Date: 1965
- Frito-Lay North America Annual Revenue (2019): $17.1 billion
- Frito-Lay North America Annual Operating Profit (2019): $5.3 billion
Frito-Lay was the product of a 1961 merger between the manufacturer of Fritos corn chips and the snack-food delivery company started by Herman W. Lay. Four years later, the company merged with Pepsi-Cola to form PepsiCo. From that day, Pepsi would be known as more than just a beverage company.
The acquisition of Frito-Lay marked Pepsi's first venture beyond the beverage market.
Under PepsiCo's ownership during the past 55 years, Frito-Lay has grown dramatically in size to become Pepsi's biggest profit producer by far. In fiscal year (FY) 2019, Frito-Lay North America accounted for 45% of operating profit, more than double any other division. The share may be larger because that number does not include international sales. Frito-Lay gets that profit stream from 29 different snack brands, including Lay's, Doritos, Cheetos, Fritos, Sun Chips, Tostitos, Cracker Jack, Miss Vickie's, Rold Gold, Ruffles, Smartfood, and more.
Quaker Oats Company
- Type of Business: Branded Foods Producer
- Acquisition Price: $13.8 billion
- Acquisition Date: Aug. 2, 2001
- Quaker Foods North America Annual Revenue (2019): $2.5 billion
- Quaker Foods North America Annual Operating Profit (2019): $0.5 billion
The Quaker Oats brand name is more than 140 years old. The company trademarked its product in 1877 with the U.S. Patent Office as a breakfast cereal labeled with its now famous figure of a man in Quaker Garb, which represented quality and honest value. The company, then called German Mills American Cereal, would later merge with the largest American oats millers to become the American Cereal Company in 1888, and eventually the Quaker Oats Company in 1901.
Exactly 100 years later, the company was acquired by Pepsi. The acquisition bolstered Pepsi's portfolio of food brands with additions such as Pearl Milling Co. (formerly known as Aunt Jemima) mixes and syrups, Cap'n Crunch and Life cereals, Pasta Roni, Quaker grits, oatmeal, granola, and rice cakes. Quaker Oats also enriched PepsiCo's beverage portfolio with the popular sports-drink brand Gatorade.
- Type of Business: Juice Producer
- Acquisition Price: $3.3 billion
- Acquisition Date: July 20, 1998
Tropicana was founded in 1947 by Anthony Rossi, who first immigrated from Sicily to the U.S. in 1921. The company sold fruit gift boxes in Florida, then expanded into a producer of freshly squeezed, 100% pure orange juice.
In 1998, Pepsi purchased the Tropicana juice business from the Seagram Company in what was its largest acquisition to date. The acquisition meant that Pepsi would be competing in the market for orange juice with rival Coca-Cola, which owns Minute Maid.
Sabra Dipping Company (Joint Venture)
- Type of Business: Food Producer
- Acquisition Price: Value of joint venture deal undisclosed.
- Acquisition Date: 2008
Sabra Dipping Company was founded in 1986 with the goal of providing American consumers tasty and healthy Mediterranean cuisine, such as hummus, eggplant spreads, and vegetarian side dishes. In 2005, Strauss Group purchased a 51% stake in the company. Then in 2008, it signed a 50/50 partnership agreement with Pepsi. Through the partnership, the two companies agreed to develop, manufacture, and market refrigerated dips and spreads throughout the U.S. and Canada. In 2012, PepsiCo and Sabra extended their partnership and announced the launch of a new global Dips & Spreads product line under the Obela brand.
- Type of Business: Juice and Smoothie Producer
- Acquisition Price: Takeover price undisclosed by Pepsi
- Acquisition Date: January 2007
Naked Juice was founded in Santa Monica in 1983. The juice and smoothie maker was then acquired by North Castle Partners in 2000. Six years later, Pepsi announced plans to acquire the company and the purchase was finalized in 2007 for an undisclosed amount. The acquisition bolsters Pepsi's portfolio of beverage brands by adding a line of drinks for more health-conscious consumers, including nutritious juice and juice smoothie beverages.
PepsiCo Diversity & Inclusiveness Transparency
As part of our effort to improve the awareness of the importance of diversity in companies, we have highlighted the transparency of PepsiCo's commitment to diversity, inclusiveness, and social responsibility. The below chart illustrates how PepsiCo reports the diversity of its management and workforce. This shows if PepsiCo discloses data about the diversity of its board of directors, C-Suite, general management, and employees overall, across a variety of markers. We have indicated that transparency with a ✔.
|PepsiCo Diversity & Inclusiveness Reporting|
|Race||Gender||Ability||Veteran Status||Sexual Orientation|
|Board of Directors|
PepsiCo Inc. "About the Company,"
PepsiCo Inc. "Form 10-K for the fiscal year ended December 28, 2019," Page 73.
PepsiCo. Annual Report 2019, Page 4.
CNBC. "PepsiCo to acquire energy drink maker Rockstar Energy in a $3.85 billion deal,"
The New York Times: Times Machine.
PepsiCo Inc. "Form 10-K For the fiscal year ended December 28, 2019," Page 80.
Frito-Lay. "Company Story,"
CNN Money. "PepsiCo-Quaker complete,"
Quaker Oats Company. "Our Oat Origins,"
The New York Times. "Pepsico to Pay $3.3 Billion For Tropicana,"
Tropicana. "Our Heritage,"
Reuters. "Israel's Strauss, PepsiCo to purchase Sabra Salads,"
Strauss Group. "Our Brands: Sabra,"
Strauss Group. "About Us: Business Partners: PepsiCo,"
Reuters. "PepsiCo buys Naked Juice from North Castle,"
Naked Juice. "Our Story,"
North Castle Partners. "Naked Juice,"
The New York Times. "Virtuous Calories Are Still Calories,"