Beverage Brands Pepsi, Poppi, and Creosote Bush Face Competition
Today, The Motley Fool's analysts discuss the recent retail sales numbers showing a continuation of consumer struggles. They predict that the upcoming retail earnings season will provide valuable insights into the economy.
In addition, the discuss Pepsi's planned $2 billion acquisition of Poppi, a soda brand with drinks containing apple cider vinegar and prebiotics. This deal is significant for Pepsi as it exemplifies a venture-capital-style approach to investing in consumer brands.
The conversation also touches on the current and future states of artificial intelligence (AI) with insights from professor Oren Etzioni of the University of Washington. AI is transforming various industries, including finance, healthcare, and more. However, it's crucial to use AI to augment human intelligence, not replace it.
For more episodes of The Motley Fool's free podcasts, visit our podcast center. For investment recommendations, check out this top 10 list of stocks to buy.
This video was recorded on March 17, 202
Dylan Lewis: Are we looking at future growth, Motley Fool Money starts now. I'm Dylan Lewis, and I'm joined by Motley Fool analyst, David Meier. David, thanks for joining me today.
David Meier: You're very welcome. It's great to be here.
Dylan Lewis: Let's kick off with the Big Picture. Fresh retail numbers out for February, US Census Bureau reporting a 0.2% growth last month over January. David, a lot of the coverage here is focusing on continued consumer struggles. This upcoming retail earnings season will be a key read on the economy.
David Meier: Absolutely, you're exactly right. We're seeing 0.2% growth, and expectation was 0.6%. After January's decline, economists were expecting a pickup in February. It did happen, but just not to the extent that they wanted. This is an extension of a theme that's been going on. Earlier in the month, we saw the confidence index falling a bit. Recently, we've gotten data from the University of Michigan consumer survey. Their confidence is down a bit. According to both surveys, consumers are starting to worry about inflation popping up in the rest of 2025. We're seeing lots of numbers that basically are saying low-end consumers are really feeling the pinch.
There were two quotes from the CEOs of Dollar General and Walmart, who said, the low-end consumers are extended. They're buying smaller quantities in the back half of the year. Their money's not going as far as they want. There's tariffs and trade wars, causing uncertainty. Businesses are having a hard time planning for this. By the way, retailers like Best Buy have come out recently and said, hey, we're going to have to raise prices, which is the exact wrong thing if consumers are feeling the pinch. This is like I said, an extension of bad news. Obviously, we're still seeing growth, but it's just not as much as we want, and hopefully, it won't turn negative.
Dylan Lewis: You brought up tariffs. I mean, I think there was some expectation that there may be inflation concerns anyways, regardless of the tariff environment, just because of where we've been over the last couple of years. Tariffs seem to add a necessary price hike to what a lot of retailers will be passing along to consumers, which is another way of saying, you know, inflation. We didn't really see a lot of that in the February numbers. Aside from what we're seeing here from the US Census Bureau, you name some of the other data sources. Where else are you looking to get a sense of consumer appetite and really how businesses are handling this?
David Meier: I think the best way to get that data is, quite frankly, next quarter's earnings reports. We'll have enough time to go by, as the businesses will be able to see and tell us exactly what happened to them in January, February, and March. They'll also have started their planning process. What are they going to see for second quarter? We continue to get the monthly economic data. We'll continue to get survey data, which is all good stuff. That can give us a sense of what's happening. But I'm definitely looking forward to all the retailers, consumer products companies, all the things like that, who are going to say, hey, here's what our businesses did. Here's where we think we're going. Hopefully, it's up into the right.
Dylan Lewis: Speaking of those consumer products companies and consumer package good companies, we got some news from Pepsi today. They are buying a lot of cans of Poppi, a prebiotic soda company, for almost $2 billion. Is this a brand that you've tried before? This Monday Morning Jolt of natural caffeine sounds interesting.
David Meier: Actually, no, and the worst part of it is, I'm actually a soda drinker. Some of the Motley Fool have even said, I have a problem. We've discussed this in the past. I was chided and berated for how many diet Mountain Dews I used to drink. I don't drink as many anymore. But no, this isn't one that I have tried directly. I will say this. I'm definitely going to go out and give it a try. I'm a very price-conscious soda buyer. I'm looking for things that are on sale. I have no problem with the white label, private label brands, from the local supermarket. That's my go-to. These are a little expensive for my taste, but definitely, I'm going to give one a try.
My daughter, who is not a soda drinker and has also not tried one. One of the brands that we actually drink is a brand called Zevia. It's a soda that's sweetened with stevia, as opposed to sugar. She's like, I like that one better. It's got fewer things in it. In some sense, it could be better for you. But it's hard to argue with the success of Poppi and other competitors in the space that's happened recently.
Dylan Lewis: I could not believe how serendipitous the timing was for this because I literally had my first Poppi soda this weekend. I have it in hand here as we're taping today's show. For folks that haven't had it or maybe haven't had one of these soda alternative type drinks, I almost think of them as adult sodas. They're what sodas were maybe before high fructose corn syrup ever existed. It's more natural ingredients, a little bit more of a natural, less punch in the mouth kind of sweet flavor. I like them, but I think you're dead on here. They are a more expensive product, and they are not something that is going to necessarily appeal to every consumer, but they may appeal to people who are regular soda drinkers looking to make a healthier choice every now and then. I almost equate it to the space that Beyond Meat was in early on with meat eaters, trying not to go full replacement, but trying to offer alternatives.
David Meier: I think that's spot on. As I was doing a little more reading, and I shared this article with you, I'm actually quite surprised to see that Olipop, at least according to the article that we read from Bloomberg, Olipop and Poppi made up 2.7% of the carbonated beverage market. If you think about it, that's enormous. Like, these have been around for what? Let's call it 5-7 years. Assuming I don't know exactly when they when they started their businesses.
Dylan Lewis: But Poppi was like 2018.
David Meier: It's the heyday. 2-3 years, that is insane. Like, they have done a good job of, one designing their product, marketing their product, making it available. Maybe it's not a surprise that Pepsi is buying them because they Pepsi can actually push this trend forward, given the amazing amount of distribution that they have, as well as the increased marketing budget that'll be available to the product now that it'll be under the Pepsi umbrella.
Dylan Lewis: Looking at the way the market is digesting this news, shares of Pepsi up about 2%. Pepsi is, after all, a $200 billion company. This is about a $2 billion acquisition. I think the excitement is going to be a little muted. How do you see this fitting into their overall strategy?
David Meier: It's difficult for them and for competitors like Coke. It's difficult for them to actually develop new products. They just have amazing stable of brands. In some sense, it's almost like the pharmaceutical industry where you let smaller folks do the innovating and you buy them later and bring distribution and marketing power to that equation. I think it fits in. It's definitely a trend. It's bigger than I thought. There's a there there, let's say. So it's not like they're taking a flyer. They're taking a flyer. This is an established brand, and again, they can bring bring some heft, bring some strength with their marketing and distribution, put it behind it. Basically, if you think about what the 2% market up. If it's 1% of the market cap and the market is 2% up, essentially, the market likes this acquisition. I think I do, too.
Dylan Lewis: David, I'll raise a can to you. Thanks for joining me today.
David Meier: Thanks for having me. This is awesome.
Dylan Lewis: Up next, the future growth of artificial intelligence. Motley Fool analysts Andy Cross and Asit Sharma talk with Oren Etzioni, an AI expert and professor emeritus at the University of Washington, about the current and future states of artificial intelligence.
Andy Cross: Doctor Etzioni, I'll just reflect on a 2024 New York Times article from last year, where you said, you're an optimist about artificial intelligence. But that was just last year. If 10 is totally optimistic, and one is completely pessimistic, where are you these days, and why?
Dr. Oren Etzioni: Well, I'm ambivalent, to be honest. On the optimistic side, I'm absolutely at a nine or even a ten simply because we're seeing self-driving cars. We've been promised them for a long time. They're coming to the fore. You can actually get in one in San Francisco and Phoenix, and more cities every day, and these save lives. Their accident rates are much lower than the 40,000 highway deaths we have each year. I could go on and on. But the bottom line is there's just these huge benefits of AI saving lives. At the same time, I would say, on the negative side, I'm out of five because we do have some very real concerns with the use of AI by totalitarian regimes, the impact of AI on jobs and disinformation. We have plenty of problems that AI causes as well.
Andy Cross: Doctor Etzioni, when you reflect on where we are today and you think about the technologies and then going forward, is there one particular application of AI whether it's in the application of chatbots or you're so involved in there because you've looked at so many businesses and you've invested in different businesses and run different businesses, I'm curious when you think about the application of AI, you mentioned driverless cars, which I agree with, but there are other things that really catch your attention these days?
Dr. Oren Etzioni: Absolutely. My colleague Andrew Inc of Stanford said AI is the new electricity. The first thing to understand before we get into some specifics, and I will in a sec, is just how transformative it is. Take a dart throw it anywhere on any word in a dictionary, any field, education, healthcare, cars, robots. You you name it. Yes, AI is right now transforming that. There are start-ups, now, it takes a while. Some of these, particularly in heavily regulated industries like healthcare, it's going to take a while to reach its peak. But right now, in finance, for example, in investing in regulatory compliance, it's going to take a while to reach its peak. But right now in finance, for example, in investing in regulatory compliance and things where there's like reams and reams of texts that somebody has to read and make sense of quickly, AI is up to that task because it can now really understand language, and it doesn't run out of patience for time.
Andy Cross: Investing is a great I mean, just the amount of things that we are using the different tools for to go through financial statement analysis. I was just doing it this morning, doing some research, and I mean, it's just a game changer, really. It's a complete time saver. I don't know if the regular consumer on the street is, I still think we haven't seen the adoption of that. Do you agree with that?
Dr. Oren Etzioni: Well, what I'd like to point out and again, we can spend a little bit of time to unpack this just AI and investing is complicated. But the thing I want to highlight is, I think people may not be aware the person on the street to the extent that they're already using AI every day. When they're using, Alexa speech recognition, that's AI. When they're using a search engine, the ranking is done using AI. When you get a recommendation from Amazon or even your Facebook feed, that's all done using AI. We're using it everywhere. Now, in investing, you do need to be more sophisticated. Maybe you need to be a Fool to be using AI.
Asit Sharma: Dario Amodei, who is the CEO of Anthropic has a lot of vision about the future and how AGI can benefit society. One of the visions he puts forward is that a reasonably intelligent artificial intelligence could be put in control of the means of production. An AGI could control a factory and produce things at scale or it could use tools to actually do science. Right now, we think of having a transformer mechanism, look through datasets and maybe come up with some innovative molecule. But he posits that the actual machine itself could have control over those tools. Do you think that is something that's viable or going to come anywhere near into the future?
Dr. Oren Etzioni: You're bringing up a really important point that a lot of people misunderstand, and I feel like this is the most important thing I'm going to say today. Let me just take a few extra seconds to say this. We often conflate, confuse, mix up intelligence and autonomy. Basically, autonomy is power. People who are very powerful, often very intelligent, often gain a lot of power. We naturally see these things going hand in hand because that's how it works with people. With machines, it's very different. If you take ChatGPT, in some ways, one of the most intelligent programs ever built, and you ask it, hey, ChatGPT, what do you do between queries? The answer is nothing. I just sit there and wait for the next query. Is ChatGPT powerful? No, does it have autonomy? No, it just sits there. Likewise, with these more sophisticated systems.
The reason that's important is we can build over time AI systems that can do very sophisticated things. But people will and should remain in charge. Some of these visions, like the ones you're describing, assume that once we have these intelligent machines, we're not using them as tools, they're using us. I think that's a misconception, and the example I love to give to just drive this home is we're on the verge of having self-driving cars in many places. As I mentioned, we already have them in several cities. It's the case that the car decides when to hit the brake, when to hit the gas, and all that to keep you safe. But it's not like the car decides where to go. It's not like I get into the car and I say, hey, I want to go to Dunkin' Donuts, and it says, oh, no, and it's the second time this week. I'm taking you to the gym. That's not how it works. You still decide where the car goes, and that's the way it needs to be with AI.
Asit Sharma: What I'm really curious about, and you're an expert in machine learning among so many other things, if we look forward to this future where we do have artificial general intelligence, will it really be able to solve problems? It seems to me that so much of AI is based on optimization functions. So making things that are really probabilistically correct. The human brain is so good at seeing things that come out of left field or just having something that's in your consciousness that gets related to something else. Then we have breakthroughs. Why haven't we seen as yet, in the not just the three years, where most of us have been using things like ChatGPT, but in the years before, why have we not seen a major scientific breakthrough from the machines?
Dr. Oren Etzioni: I love that question because my colleagues at the Allen Institute for AI are actually working on machines for scientific discovery as per the paper that I wrote a while back that you mentioned, which is there. You're right that it's important and valuable, and you're right that we haven't quite seen it yet. It has to do actually with taste. It has to do with the fact that you can generate actually an enormous number of scientific advances. Most of them are completely uninteresting. Think of it. You can generate all these new molecules, but most of them are like, you know, they're hard to produce. They don't help anybody, so what's the point?
It turns out that we still have a very strong, I don't want to call it monopoly, but a very strong advantage in taste in knowing what's important, what really makes a difference. Science requires a lot of taste, as, by the way, does art. If you tell it to copy Picasso, it can do that very quickly. If you tell it to mix Picasso and van Gogh, it'll do that very easily. If you tell it to produce art, it'll produce ten thousand paintings in a few seconds. But if you tell it to produce beautiful art that's new and exciting, all of a sudden, it's like a colleague of mine said that the music that AI produces sounds like wet cardboard. It doesn't have taste.
Dylan Lewis: Listeners, that interview originally aired on our new live stream offering Fool 24. You can catch Fool 24 every day on our members site and also on the Motley Fool's YouTube channel. Drop a link to the channel into the full version of the conversation in our show notes for today's episode. As always, people on the program may have an interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy anything based only on what you hear here. All personal finance content follows Motley Fool standards, and it is not approved by advertisers. The Motley Fool only picks products it personally recommends to friends like you. For the TMF team, I'm Dylan Lewis. Thanks for listening. We'll be back tomorrow.
- The recent retail sales numbers indicate a continuation of consumer struggles, and the upcoming retail earnings season will showcase valuable insights about the economy.
- PepsiCo's acquisition of Poppi, a prebiotic soda brand, signifies a venture-capital-style approach to investing in consumer brands, providing opportunities to innovate in the beverage industry.
- Artificial intelligence (AI) is transforming a wide range of sectors, including finance, healthcare, and more, with the potential to augment human intelligence instead of replacing it.
- It is not necessarily required for companies to adopt prebiotics in their products due to consumers' preferences and market demands playing a significant role in shaping the industry trends.
