PepsiCo boosts the health drink business with a Poppi deal of $2 billion.

At a time when the business is struggling with dwindling demand for its traditional beverages and snacks, PepsiCo announced on Monday that it will pay $1.95 billion to acquire the prebiotic soda brand Poppi, entering the “healthier soda” market.

Early trading saw a 1.6% increase in PepsiCo shares.

As part of a larger trend toward fitness and lifestyle products, young Americans are increasingly choosing healthier sodas and energy beverages. Coca-Cola, a competitor, has expanded its Simply brand to include a prebiotic soda named “Simply Pop.”

By acquiring smaller energy and wellness drink manufacturers, competitors, including Celsius Holdings and Keurig Dr Pepper, have also targeted the market.

At a time when several price increases are weighing on demand for PepsiCo’s sodas and Lay’s snacks, the Poppi transaction strengthens the company’s position in the healthy drink market and causes it to project a poor yearly profit.

Due to consumer appetite for more drinks that focus on gut health, prebiotic sodas have emerged as one of the fastest-growing categories in the carbonated drinks market in the United States.

J.P. Morgan analyst Andrea Teixeira stated that the transaction aids in “establishing a foothold in the fast-growing ‘modern’ soda segment and shoring up a CSD portfolio that has been losing share to Coca-Cola and Keurig Dr Pepper for years.”

Apple cider vinegar, fruit juice, and prebiotics are combined in Poppi to provide a low-calorie beverage that has no more than five grams of sugar per serving, according to PepsiCo.

According to BNP Paribas, the Austin, Texas-based company’s retail sales increased 122% year over year in the 12 weeks leading up to February 22 and has approximately 1% of the market for carbonated soft drinks.

Originally known as Mother, Poppi was rebranded in 2020 after being launched by Stephen and Allison Ellsworth.

Rohan Oza, a co-founder of CAVU Consumer Partners and an investor, supported the founders when they made an appearance on Shark Tank in 2018.

Without revealing other details of the agreement, PepsiCo stated that the deal with Poppi included $300 million in expected cash tax advantages for a net purchase price of $1.65 billion.