Pepsi taps booming gut-health market with $2bn Poppi deal

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PepsiCo has struck a $2bn deal to buy Poppi, becoming the latest big group seeking to capitalise on the booming market for “prebiotic” drinks that claim to promote gut health.

Poppi, whose founders raised their initial funding through the Shark Tank television show, is one of several emerging soda brands that claim to foster healthy intestinal bacteria and contain less sugar than conventional soft drinks.

The ingredients include juice, vinegar and prebiotics, and the drinks’ popularity has been fuelled in part by viral marketing on TikTok and other social media platforms.

New York-based Pepsi announced the deal on Monday as packaged foods companies work to revive sales volumes that have been flagging as inflation-weary consumers pull back on spending.

Unit volumes at Pepsi’s North American beverage business fell by 3 per cent last year, a drop that included lower sales of bottled water, Gatorade soft drinks and Lipton iced tea.

“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,” said Ramon Laguarta, Pepsi chief executive.

Poppi is the largest gut-health drinks company in the US with more than $500mn in annual revenue, closely followed by privately owned rival Olipop, Duane Stanford, editor and publisher of trade publication Beverage Digest, estimated.

Poppi’s sales at retail stores grew by 163 per cent in the year ending on January 25, Stanford said. He projected that the gut soda segment will reach $2bn in sales by 2029. Pepsi reported $27.8bn in North American beverage sales in 2024.

Pepsi’s rival Coca-Cola last month began stocking US supermarket shelves with a competing product named Simply Pop, an extension of its Simply fruit juice brand, and pointed to its popularity with Gen-Z and millennial consumers.

“Gut sodas have graduated to the big leagues” with Pepsi’s acquisition and Coke’s launch, Stanford said, though the arrival of the industry’s top participants is likely to increase competition.

“The question long term is whether the category becomes watered down with so many recent entries into the market,” added Stanford.

Co-founder Allison Ellsworth concocted Poppi, then known as Mother Beverage, in her kitchen. She and her husband Stephen got a big break in 2018 on Shark Tank, an ABC-TV show, where investors quiz entrepreneurs and offer to back promising companies.

Former Coke executive Rohan Oza, one of the panel of investors on the show, decided to fund the Ellsworths’ business through CAVU Consumer Partners, an investment firm that he co-founded.

The $1.95bn value of the deal includes $300mn in anticipated cash tax benefits that give it a net purchase price of $1.65bn.