By Ananya Mariam Rajesh
(Reuters) -PepsiCo said on Monday it would buy prebiotic soda brand Poppi for $1.95 billion, expanding into the "healthier soda" category at a time when the company is battling falling demand for its traditional beverages and snacks.
Shares of PepsiCo (NASDAQ:PEP) were up 1.6% in early trading.
Young Americans are increasingly turning to healthier sodas and energy drinks as part of a broader shift to fitness and lifestyle products, with rival Coca-Cola (NYSE:KO) expanding its Simply brand to launch a prebiotic soda called "Simply Pop".
Peers such as Celsius Holdings (NASDAQ:CELH) and Keurig Dr Pepper (NASDAQ:KDP) have also targeted the market by snapping up smaller energy and wellness drink makers.
The Poppi deal boosts PepsiCo’s presence in the healthy drinks category at a time when multiple price hikes weigh on demand for its sodas and Lay’s snacks, pushing the company to forecast weak annual profit.
Prebiotic sodas have become a top-growing category in the U.S. within the carbonated drinks segment (CSD), powered by a shift in preference to more gut health-focused drinks.
The deal helps in "establishing a foothold in the fast-growing ’modern’ soda segment and shoring up a CSD portfolio that has been losing share for years to Coca-Cola and Keurig Dr Pepper," J.P. Morgan analyst Andrea Teixeira said.
Poppi combines prebiotics, fruit juice, and apple cider vinegar to create a low-calorie soda with no more than five grams of sugar per serving, PepsiCo said.
The Austin, Texas-based company’s retail sales jumped 122%, year-over-year, in the 12 weeks through February 22 and now holds about a 1% share of the total carbonated soft drinks category, according to BNP Paribas (OTC:BNPQY).
Poppi, founded by Stephen and Allison Ellsworth, was initially known as Mother and was rebranded in 2020. The founders appeared on Shark Tank in 2018, and had gained the backing of investor and co-founder of CAVU Consumer Partners Rohan Oza.
The deal with Poppi includes $300 million of anticipated cash tax benefits for a net purchase price of $1.65 billion, PepsiCo said, without disclosing additional terms of the deal.