Can Pepsi’s poppi purchase help it go younger as Americans drink less soda?

poppi commercial:

“Stop spiraling. Get a poppi… Get a poppi.”

Simone Del Rosario:

PepsiCo doesn’t just want A poppi… it’s going for the whole thing.

The beverage and snackfood giant agreed to buy poppi Monday in a deal valued at $1.65 billion.

As more Americans move away from Big Soda’s traditional brands, Big Soda is getting a big appetite for the competition.

Take poppi, “a fast-growing functional soda brand that combines prebiotics, fruit juice, and apple cider vinegar to create a deliciously refreshing low calorie soda with no more than five grams of sugar per serving.”

poppi commercial:

“Poppi I love you so much. (cans popping open)”

Simone Del Rosario:

Allison and Stephen Ellsworth founded the company in 2015. Before poppi was poppi, the couple appeared on a 2018 episode of Shark Tank to get investment under a different name.

Allison Ellsworth:

“I started drinking apple cider vinegar or ACV to detox and lose weight. I loved the way it made me feel, but the taste was so strong. So we created ‘Mother Beverage.’”

Simone Del Rosario:

In that episode, Shark Tank bellwether Kevin O’Leary and beverage industry veteran Rohan Oza shed some light on the beverage biz. But even they failed to estimate how much this company would later command.

Kevin O’Leary:

“The only way I get out of this thing alive is somebody buys you. At some point there’s an exit, right? Yes, sir. And that exit in beverage seems to be at around 50 million. When you establish some regional market share, the big guys come and take you out, as opposed to doing this themselves.”

Rohan Oza:

The big guys, what they’ve done is they have subcontracted innovation to the entrepreneurs of America. So very few brands are being launched by the big beverage companies today.

Simone Del Rosario:

Oza ended up investing $400,000 in the company for a 25% stake.

The company rebranded from Mother Beverage to poppi in January 2020.

Ram Krishnan, PepsiCo’s CEO for Beverages North America said “the poppi brand’s unique intersection with wellness and culture is a perfect addition to our portfolio. Allison and the poppi team have built a magnetic brand that’s ahead of the trends, with a loyal consumer base and a demonstrated capacity for growth.”

That younger, loyal consumer base is getting harder for big brands to capture. Last year, Coca-Cola ditched its new “Spiced” flavor after less than a year on the shelves when it failed to gain traction with Gen Z drinkers.

Pepsi’s investment in poppi comes as Americans drink less of its namesake and sodas in general. The amount of soda drank per capita has fallen in eight of the last 10 years, according to market research firm IBIS World. Soda consumption per person is down 15% from its peak in 1999.

The trend is exacerbated by sugar taxes, a UC Berkeley study from last January revealed. Cities that introduced beverage excise taxes, like Philadelphia and Seattle, saw a corresponding decrease in soda purchases.

In Philadelphia, it’s a tax of 1.5 cents per ounce of sweetened drink. The distributor pays the tax.

Sugar-sweetened beverages are the leading source of added sugars in the American diet, according to the Centers for Disease Control. The CDC says “Frequently drinking sugar-sweetened beverages is associated with weight gain, obesity, type 2 diabetes, heart disease, kidney diseases, non-alcoholic liver disease, tooth decay and cavities, and gout, a type of arthritis.”

While “sugar-free” sodas have been around for years, the prebiotic beverage market is a relatively new and growing space. Today, it accounts for $820 million in retail sales. That’s roughly 2% of the $42.4 billion soft drink market, Citi beverage analyst Filippo Falorni told Fortune.

Coca-Cola beat frequent competitor Pepsi to the game, launching its own prebiotic soda brand last month called Simply Pop. Over the years, we’ve seen Coca-Cola move into offering somewhat healthier products, buying up sports drink brand Bodyarmor and Vitaminwater.

The trend of these Big Food companies buying so-called health food companies goes well beyond the drink aisle. Pepsi bought the simple-ingredient, gluten-free brand Siete Foods in January for $1.2 billion.

You see RX Bars in stores listing out its all-natural ingredients. Kellogg bought it back in 2017 for $600 million.

Today’s health food upstarts seem to focus on ingredients. But we’ve seen these swings before in different forms. Remember the low-fat, low-calorie craze? Nabisco produced SnackWell’s products from the 1990s into the 2000s. These low-fat cookies sometimes sat right next to other Nabisco products like Chips Ahoy!

And here’s a fun fact: The SnackWell effect is a phenomenon where dieters end up eating more low-calorie cookies than they would have normal cookies.

But that’s a story for another day. The SnackWell’s brand retired in 2022. For SAN, I’m SDR.