In an interview to CNBC, PepsiCo, Inc.’s (PEP - Analyst Report) chief executive officer (CEO), Indra Nooyi, said there is no need to split the company’s beverage and snacks businesses. Nooyi insisted that the businesses are complementary and “better together”, not just in United States but worldwide.
Pepsi has been under pressure from activist investor, Nelson Peltz to acquire food giant Mondelez International, Inc. (MDLZ - Analyst Report) and then spin-off its underperforming beverage business. Peltz’s investment company, Trian Fund Management, holds major stakes in both the food companies.
Pepsi earns approximately equal revenues from snacks and beverages. Pepsi’s snack business is growing fast on the back of successful innovations and increased brand-building investments. However, the beverage business is lagging.
Peltz believes that shifting consumer preferences toward health and wellness and “good-for-you” products is lowering the demand for high-calorie soft drinks. Thus, beverage giants like Pepsi and The Coca-Cola Company (KO - Analyst Report) are witnessing declining sales of carbonated beverages, especially the colas. Peltz feels Pepsi’s underperforming beverage business is overshadowing its snack unit.
PepsiCo has increased marketing investments and is driving package and product innovation to boost its American beverage business. Moreover, the company is looking for structural alternatives to turn around this business.
Mondelez International focuses on the global food and snacks business of the erstwhile Kraft Foods which includes several popular brands like Tang, Oreo and Cadbury. In Oct 2012, the former Kraft Foods spun off its North American grocery business into a separate independent company, Kraft Foods Group, Inc. .