Coke, P&G; Creating New Venture to Sell Juice, Snacks
Coca-Cola Co. and Procter & Gamble Co. are creating a new, jointly held company to market such famous brands as Minute Maid juices and Pringles chips.
The two consumer products giants on Wednesday said they will seek regulatory approval in several countries to create a $4.2-billion company that will link P&G;’s research and development prowess to Coke’s vaunted worldwide distribution system.
The new entity, with 15 manufacturing plants and 6,000 employees, will market P&G;’s Sunny Delight and Pringles brands, Coke’s Minute Maid, Hi-C, Fruitopia and Five Alive brands, and dozens of other fruit drink beverages sold by Coke in foreign countries.
P&G; and Coke are responding to growing demand from consumers who want easy access to snacks and beverages wherever they happen to be. PepsiCo Inc. has been positioning itself to meet changing consumer needs through such acquisitions as the Tropicana juice lines and Quaker Oats’ snack and Gatorade brands.
What will the deal mean for consumers if it passes antitrust review? Expect to find Pringles and Sunny Delight goods popping up in gas stations, convenience stores and other nontraditional locations. Pringles chips probably will be sold through Coke’s extensive network of vending machines.
Coke’s distribution system also will give P&G; a pipeline into fast-food restaurants, movie theaters and other high-traffic locations, analysts said.
Getting in hungry consumers’ faces is increasingly important in the snack sector because 66% of salty snack purchases are impulse buys. P&G; Chief Executive A.G. Lafley told beverage and snack industry analysts that Pringles chips typically are found at just two locations along grocery story aisles--in contrast to Coke, whose brands are displayed at about 16 locations.
The new company is gearing up to go after what’s already a big business. Globally, consumers devour $50 billion in snacks and $34 billion worth of juice and fruit-based drinks each year.
PepsiCo is one reason P&G; and Coke are joining forces. The two powerful companies are betting that their combined juice and snacks businesses will be a stronger competitor against PepsiCo’s dominant juice-based drinks and salty snack operations.
Pepsi, P&G; and Coke are responding to new competitive realities in the retail world, where “Wal-Mart rules the seas,” said Santa Barbara-based beverage analyst Tom Pirko. “As the retailers get stronger, the suppliers also are getting bigger. It’s all about the right to say [what product] goes where, and who gets the profit.”
In addition to marketing domestic brands abroad, the new company will market dozens of foreign Coke brands, including Punica, sold in Germany, and Qoo, sold in Japan. And, as the fruit drink and snack lines move under the new company’s umbrella, analysts expect P&G; to concentrate on its core fabric and home-care products, baby product lines and beauty and health products, while Coke attends to its relatively slow-growing carbonated-beverage lines.
Coke and P&G; each will own 50% of the new company, which will have two board members from each parent corporation. Don Short, a 24-year Coke veteran, will serve as chief executive. Coke shares fell $3.55 to $54.92 Wednesday, and P&G;’s shares rose by $1.09 to $76.80, both on the New York Stock Exchange.
