Dive Brief:

• PepsiCo is purchasing prebiotic soda maker Poppi for $1.95 billion. The transaction is subject to regulatory approval. 
• The CPG giant said the brand, which saw $500 million in sales last year, has amassed “a loyal fan base and a demonstrated capacity for growth,” PepsiCo’s U.S. beverages CEO Ram Krishnan said in a statement.
• Beverage giants have expanded into the better-for-you soda category dominated by Poppi and Olipop, the latter of which was valued at nearly $2 billion following its latest funding round last month. PepsiCo rival Coca-Cola entered the space last month with a new product line, Simply Pop.

Dive Insight:

PepsiCo built its empire on the back of sugary, carbonated drinks such as its namesake cola, Mtn Dew and Mug Root Beer. Its purchase of Poppi signals a sea change in the soda category, validating the growing number of consumers craving more functional ingredients and less sugar in their soft drinks.

Ramon LaGuarta, PepsiCo’s chairman and CEO, said the purchase follows the company’s plan to strategically acquire brands in new spaces to evolve its portfolio.

“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,” LaGuarta said. “poppi is a great complement to our portfolio transformation efforts to meet these needs.”

Poppi first gained national attention after it appeared on an episode of Shark Tank in 2018, receiving an investment from Rohan Oza, the co-founder of Cavu Consumer Partners. It launched two years later at the beginning of the COVID-19 pandemic. The functional soda maker grew its presence in recent years following a $25 million funding round in late 2022.

PepsiCo initially planned to launch a better-for-you soda under the brand name Soulboost, but the product was nixed in development amid indications that it wouldn’t succeed, Bloomberg reported. PepsiCo appears to have decided that despite its deep financial, marketing and distribution resources it was better to go out and buy the competition rather than struggle to compete against them with its own product.

Its strategy stands in contrast to Coca-Cola, which instead of going out and buying a brand decided to launch its prebiotic soda offering under its Simply juice brand.

PepsiCo has prioritized purchasing trendy brands with healthier ingredients to diversify its portfolio and better compete in beverages and snacks. Last October, it acquired Mexican-American tortilla chip maker Siete Foods, known for its clean-label ingredients, for $1.2 billion.

Poppi’s formula contains a blend of sparkling water, apple cider vinegar and prebiotics like agave inulin, with 5 grams of sugar per can. It’s expanded with 14 flavors, including Orange Cream, Root Beer and Cherry Limeade.

Poppi’s health claims have also faced some scrutiny, with a class action lawsuit filed last summer claiming the drink is “basically sugared water.” Its marketing campaigns, including a high-profile Super Bowl ad this year and a vending machine giveaway to social media influencers, have also drawn controversy.