Virgin Cola: Is U.S. Ready?

Driving a tank through the streets of New York City, flamboyant businessman Richard Branson on Tuesday escalated the cola wars with the introduction of a British-made alternative that hopes to challenge market leaders Coca-Cola Co. and PepsiCo Inc. on their home turf.

Virgin Cola Co., which has sold cola in England since 1995 with mixed results, initially will limit U.S. marketing to Los Angeles, New York and a handful of other major cities. But Branson, the colorful chairman of London-based Virgin Group, said the new cola eventually will be rolled out across the country.

“There’s really very little competition in the U.S. cola market, so I’m excited by the thought of Virgin Cola taking on Coke and Pepsi,” Branson said. “We are not claiming that it will be easy to break century-old drinking habits overnight, but we believe if anyone can, we can.”

Virgin Cola’s introduction comes less than a week after PepsiCo accused Coca-Cola of trying to freeze it out of the soda fountain segment of the soft-drink market. The suit alleging antitrust violations by Coca-Cola seeks unspecified damages.

Branson’s entry will start far behind third-place Dr Pepper/Seven-Up Cos., which has 14.5% of the U.S. soft-drink market. Coke has 43.9% of the $54-billion market, while Pepsi-Cola has a 30.9% share, according to Beverage Digest, a Bedford Hills, N.Y.-based trade publication. No other competitor has more than a 3% market share.

“That army tank Mr. Branson is driving better have a good transmission because he faces a long, uphill fight,” said Greg Prince, editor of New York-based Beverage World, another trade magazine. “If he’s very lucky, he’ll get 1% of the market and that would be doing very good.”

Branson has never been shy about bucking conventional wisdom. The entrepreneur who opened a record store in London in 1971 now has 15,000 employees in 22 countries.

Virgin Atlantic Airways Inc., launched in 1984, is now England’s No. 2 transatlantic carrier behind British Airways. Virgin Group also operates 14 Virgin Megastores, which sell videos and recorded music. Branson also has business interests ranging from railroads and banking to television programming and the music industry.

With Tuesday’s high-profile cola introduction, Branson joined a select list of companies that have tried to grab market share in the cola industry.

“It’s been a while since anybody gave it a good shot,” Prince said. “I’d guess the last one would have been Jolt Cola, and that’s more of a limited novelty line.”

Jolt, a high-caffeine drink marketed mainly to teenagers by Rochester, N.Y.-based Global Beverage Co., has been on the market for 12 years, but has yet to crack Beverage Digest’s Top 10 list.

Branson doesn’t expect to turn an immediate profit from his U.S. venture. “We expect to be investing money for about five years,” he said. “We believe that’s about how long it will take to turn the corner and make some decent returns.”

Virgin Cola has generated mixed results at home in Britain, observers say. Branson maintains that his cola recently moved past Pepsi in the British “take-home” segment with an 11.9% share. But observers say Virgin’s overall share of the British soda market is less than 1% when fountain sales, vending machines and other retail outlets are included.

The small office that Virgin will create to run its U.S. soft-drink operation will be headquartered in Los Angeles, where Virgin has a significant presence because of its music, retail and airline operations. But bottling and distribution will be contracted out to third parties around the country.

Ground Zero, a Los Angeles-based advertising agency, will handle Virgin Cola’s advertising. While the cola’s first-year ad budget will be just $20 million--a drop in the bucket for Virgin’s well-heeled competitors--Branson maintains that the advertising campaign will be distinctive.

“Pepsi and Coke spend millions and millions of dollars on advertising that doesn’t really say anything,” he said. “Our campaign will give young people, middle-aged people and old people a chance to say something in our advertising and on our cans. . . . You’ll hear lots of different people saying different things.”

Virgin Cola might also import a new bottle design from Britain that is referred to as “the pammy,” a reference to actress Pamela Anderson Lee. Branson has described the bottle as being “very loosely based on the curves of a woman.”