Poppi just sold for $1.6 billion

New York (CNN) — PepsiCo is buying Poppi, the popular prebiotic soda brand, in a $1.65 billion deal.

The move marks PepsiCo’s further shift into the “better for you” category as consumers shy away from sugar-filled drinks and unhealthy snacks. In January, the company bought Siete Foods, which makes gluten-free chips for $1.2 billion, and PepsiCo bought the remaining half of the Sabra hummus brand it didn’t own late last year.

“We’ve been evolving our food and beverage portfolio over many years, including by innovating with our brands in new spaces and through disciplined, strategic acquisitions that enable us to offer more positive choices to our consumers,” said Ramon Laguarta, CEO of PepsiCo, in a statement Monday.

“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,” he added.

Harnessing PepsiCo’s major distribution agreements and marketing budget could give Poppi an advantage over rival Olipop, however both brands are still relative newcomers and have room to grow in terms of sales and awareness.

Despite growing in popularity, only about 5% of consumers drink prebiotic sodas regularly, according to Zappi, a consumer research firm.

“The challenge for these brands lies in the disconnect between brand awareness and functional understanding,” said Nataly Kelly, chief marketing officer of Zappi, told CNN. “While most consumers have heard of prebiotic sodas, only about a third truly understand what they are and how they work.”

The transaction is subject to regulatory approval and PepsiCo didn’t say when the deal would close.

Poppi’s growth

Poppi garnered a loyal fanbase since its appearance on “Shark Tank” in 2018, when it was still called Mother Beverage. Poppi advertises its sodas as packed with prebiotics and apple cider vinegar that it claims can aid with gut health, although the health benefits on those claims are dubious.

Pepsi’s competitor, Coca-Cola, hopped on the trend by launching its own line of prebiotic sodas, Simply Pop, last month. Other similar sodas have also entered the market in recent weeks including Spindrift Soda and Bloom Nutrition.

“The gut soda wait-and-see period for major soda makers like PepsiCo and Coke is over. They have seen enough to jump in,” Duane Stanford, editor and publisher of Beverage Digest, said to CNN.

PepsiCo’s plans to launch its own prebiotic soda brand based off its Soulboost beverages have been scrapped.

But Poppi’s rise in popularity hasn’t been completely drama-free. The soda company drew backlash over Super Bowl weekend last month for gifting full-sized full-sized Poppi vending machines to influencers, from social media users who called it out of touch.

Despite the controversy, the market for healthy soda doesn’t seem to be slowing down.

The functional beverage sector, which is the industry phrase for non-alcoholic drinks that advertise additional health benefits, is growing at a faster pace than regular sodas. The category is projected to generate $2 billion in sales by 2029, according to Coca-Cola’s research.

Last month, rival Olipop received a $1.85 billion valuation after a $50 million funding round and that it turned a profit for the first time since its launch in 2018, doubling the previous year’s sales at $400 million. Poppi has not publicly disclosed its valuation.

“We’ll see whose strategy plays out best – buy like PepsiCo, or build with an existing brand, like Coke,” Stanford said. “Much of that depends on whether this gut soda segment has long-term legs or is a mirage of our times.”

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