PepsiCo Buys Poppi For $1.95B—So Why Is The Brand Facing A $5M Lawsuit For False Advertising?

PepsiCo announced on Monday that it will acquire the popular prebiotic soda brand Poppi for $1.95 billion (£1.50 billion), marking a significant step in the company's broader push towards health-conscious products.

The statement released by the company said, 'PepsiCo has entered into a definitive agreement to acquire Poppi, a fast-growing prebiotic soda brand, for $1.95 billion, including $300 million of anticipated cash tax benefits for a net purchase price of $1.65 billion.' The deal is supposed to propel Poppi's growth under PepsiCo's vast distribution network. However, the process might come as a challenge for the company since the prebiotic soda brand is grappling with a $5 million lawsuit over misleading health claims.

According to reports, the lawsuit accuses Poppi of falsely advertising its sodas as beneficial for gut health despite concerns that the products contain insufficient key ingredients to deliver the promised benefits. However, recent reports suggest that Poppi reached an $8.9 million settlement to resolve the false advertising claims as part of the ongoing legal proceedings.

The Rise of Poppi and Its Growing Popularity

In 2018, Poppi founders Allison and Stephen Ellsworth appeared on Shark Tank's season 10. The brand was then known as Mother Beverage. The guest shark Rohan Oza was impressed by Ellsworths' pitch and offered them a $400,000 investment with a 25% stake in the company.

According to the brand, its sodas are beneficial for gut health, digestive health, and overall well-being. The company claims that its sodas contain prebiotics, including inulin derived from agave and apple cider vinegar. Poppi arrived at a time when the functional beverage sector, including prebiotic sodas, was on the rise. Hence, the soda brand soon became a hit.

Per market analysts, the prebiotic soda industry is predicted to generate $2 billion in sales by 2029. Reports suggest that Poppi itself reached $100 million in sales by the end of 2024, and the brand emerged as a market leader in the category. It has also secured the top spot for 'soda soft drinks' on Amazon.

However, the success story of Poppi is not without controversy. According to a lawsuit filed by a former customer, it is alleged that the brand is benefitting out of false advertising. The customer accuses the brand for misleading the consumers by making promises regarding gut health when it do not contain enough inulin to deliver the advertised digestive health benefits. Hence, violating the California's laws on false advertising.

A Closer Look at the Lawsuit

In June 2024, former customer and plaintiff Kristin Cobbs filed a lawsuit against Poppi challenging the company's advertising, particularly slogans such as 'Be Gut Happy' and 'For a Healthy Gut.' The issue stems from the assertion that the amount of inulin in each can of Poppi soda is insufficient to provide any meaningful gut health benefits.

Scientific experts point out that prebiotic fibres like inulin, to have a significant effect, would need to be consumed in larger quantities than what Poppi's sodas provide. 'A consumer would need to drink more than four Poppi sodas in a day to realize any potential health benefits from its prebiotic fibre. However, even if a consumer were to do this, Poppi's high sugar content would offset most, if not all, of these purported gut health benefits,' the lawsuit said.

While speaking to NBC, Caitlin Dow, a senior nutrition scientist at the Center for Science in the Public Interest, argues that while Poppi and other prebiotic sodas may be "better than regular soda," they do not offer substantial gut health benefits. 'I don't think we should be looking to soda or to processed foods to support our gut health,' she said. 'Eating a diet rich in all of these other naturally occurring fibres — beans, vegetables, fruits, oats — that's where you're really going to get foundational support for your gut health.'

According to health experts, in order to gain benefits inulin, a person needs to consume at least 5 grams of inulin per day. However, a single can of Poppi contains only 2 grams of inulin, which is comparatively less. In response to the lawsuit, the brand released a statement saying, 'We believe the lawsuit is baseless, and we will vigorously defend against these allegations.'

According to the suit, a financial compensation amounting to more than $5 million was demanded for the lead plaintiff, Kristin Cobbs, and other Poppi customers.

A New Settlement Might Bring PepsiCo a Breather

Other than the announcement of acquisition, on Monday, it was also reported that the lawsuit against the Poppi brand over false advertising has finally reached a settlement of $8.9 million. However, it is still waiting for the court's approval. If approved, the settlement will compensate affected consumers who claim they were misled by the brand's health claims.

With consumers becoming more sceptical about products that promise health benefits, Poppi and PepsiCo will need to tread carefully as they navigate the complexities of the functional beverage market.

However, with the settlement in place, PepsiCo must now focus on rebuilding consumer trust and refining its marketing strategies. In a press release, CEO of PepsiCo, Ramon Laguarta, Chairman and CEO said, 'We are big fans of the poppi brand movement and believe this incredible brand paired with our commercial capabilities will drive continued growth and innovation for years to come.'