PepsiCo’s $1.95 billion Poppi gamble: Has the beverage giant overpaid for gut health’s future?

When PepsiCo announced its acquisition of Poppi for $1.95 billion in early 2025, the beverage world took notice. Not because prebiotic sodas were new—they weren’t—but because the price tag seemed audacious for a brand most consumers had only recently discovered on supermarket shelves. In which Coca-Cola had already entered with ‘Simply Pop’, a gut health drink leveraging its established ‘Simply’ brand just a few months back. Suddenly, the race for our digestive wellness had two heavyweight contenders, and investors were asking uncomfortable questions: had PepsiCo overpaid for a fleeting trend?

This is the premise of my new case study, written with PGPM students Meet Dave and Manik Chadha, now published by Ivey Publishing. It places readers in the shoes of PepsiCo CEO Ramon Laguarta as he faces shareholders on May 7, 2025, defending a controversial acquisition while the company’s stock stumbles. The case isn’t just about one deal—it’s about the strategic crossroads facing legacy food and beverage giants in an era where consumers increasingly vote with their wallets for health, transparency and functional benefits.

Why gut health, and why now?

The gut health market has exploded over the past five years, driven by mounting scientific evidence linking the microbiome to everything from immunity to mental health. Prebiotic sodas—fizzy drinks infused with ingredients like apple cider vinegar and inulin—promise the indulgence of soda without the guilt. For millennials and Gen Z consumers raised on Kombucha and wellness influencers, these beverages tick multiple boxes: tasty, Instagrammable and ostensibly better for you than a can of traditional cola.

Poppi rode this wave brilliantly. With pastel packaging, a founder story rooted in personal health struggles, and strategic placement in Whole Foods and Target, it cultivated a devoted following. By 2024, it had captured significant shelf space and mindshare in a category projected to grow exponentially. For PepsiCo—whose core portfolio still leans heavily on sugary drinks and salty snacks—Poppi represented not just a product, but a pivot towards the future.

Yet the acquisition raises a fundamental question: does buying a trendy start-up for nearly $2 billion constitute visionary leadership or expensive impatience?

The strategic dilemma: build, buy or partner?

PepsiCo had options. It could have developed its own prebiotic line, leveraging its distribution muscle and R&D capabilities. It could have taken a minority stake in Poppi or pursued a partnership. Instead, it chose the most expensive route: outright acquisition. The logic? Speed and credibility. In fast-moving consumer goods, being first to scale in an emerging category can create winner-take-all dynamics. But there’s a catch—Coca-Cola wasn’t asleep at the wheel.

Simply Pop’s launch exemplifies a different strategy: brand extension. Rather than acquiring an external brand, Coca-Cola used its trusted Simply portfolio to enter the space. This approach is cheaper, faster and less risky. It also highlights a critical tension in the case: when two giants rush into a nascent market, do they compete viciously for share, or do they collaborate—implicitly or explicitly—to grow the pie?

This isn’t an academic question. Research on early-stage duopolies suggests that category development often benefits from cooperative behaviour initially. Think of how rival tech companies sometimes adopt common standards to expand adoption. In beverage terms, PepsiCo and Coca-Cola might actually benefit from educating consumers together about gut health, building retail presence and normalising the category before fighting over differentiation.

But corporate instinct favours combat. Zero-sum thinking—where one firm’s gain is another’s loss—dominates boardrooms. The case challenges students to think beyond this reflex and consider whether long-run profitability might require restraint and even tacit cooperation in the short term.

Communicating strategy when the market doubts you

Perhaps the most immediate challenge Laguarta faces is narrative control. Acquisitions are always scrutinised, but when your stock is falling, and analysts question your valuation methods, even a sound strategic bet can look reckless. How should a CEO defend a major acquisition to sceptical investors?

The answer lies in clarity and conviction. Laguarta must articulate not just what PepsiCo bought, but why the broader portfolio transformation justifies the price. He must connect Poppi to PepsiCo’s ‘Positive Choices’ strategy—its commitment to healthier products—and demonstrate how this acquisition accelerates revenue growth in high-margin, fast-growing segments. Equally, he must address the Coca-Cola threat head-on, framing competition as validation of the category’s potential rather than evidence of vulnerability.

This communication challenge is often underestimated. Mergers and acquisitions fail as often from poor stakeholder management as from strategic miscalculation. Leaders must be storytellers, translators and occasionally contrarians, especially when markets react emotionally.

Lessons for businesses navigating disruption

The PepsiCo-Poppi story holds broader lessons. First, legacy companies face a ‘build versus buy’ dilemma intensified by digital-native start-ups that can scale quickly with minimal infrastructure. Waiting too long risks irrelevance; moving too fast risks overpaying. There’s no formula—only judgement.

Second, competitive strategy in emerging markets demands thinking beyond market share. Sometimes, growing the category matters more than winning battles. Firms that recognise this can shape industries rather than merely react to them.

Finally, the case underscores that acquisitions aren’t just financial transactions—they’re strategic signals. They communicate priorities to employees, investors and competitors. Getting the signal right matters as much as the deal itself.

As students work through this case, they confront real-world ambiguity: incomplete data, competing pressures and no obviously ‘correct’ answer. That’s precisely the point. Leadership in uncertain environments requires integrating strategy, finance and communication—and accepting that even bold decisions invite second-guessing.

Whether PepsiCo’s bet on Poppi pays off remains to be seen. But the questions it raises—about market entry, competitive dynamics and stakeholder communication—will resonate far beyond the beverage aisle.

Know more