Coca-Cola Company Unlikely To Buy Its Bottlers

In a recent article written by Fitch Ratings (available here), their opinion is that the Coca-Cola bottlers will not be bought by The Coca-Cola Company.  Fitch goes on by saying that two main differences are The Coca-Cola Company’s business structure and business environment.  While PepsiCo distributes Gatorade, Tropicana, and Pepsi in separate distribution systems, The Coca-Cola Company distributes their beverages mainly through one system.  Also, Fitch says that The Coca-Cola Company’s revenues are more diversified than PepsiCo’s geographically.  PepsiCo generates over 50% of their revenue from United States, while The Coca-Cola Company generates a little more than a quarter of their revenues from the United States.

So what does BevWire think?  Fitch Ratings is correct, but may not have focused on a few other aspects.  These aspects are discussed below.

PepsiCo mentioned than a specific positive of the merger will be the company’s ability to offer food and beverage bundles through their different business divisions (Pepsi, Quaker, Tropicana, Gatorade, Frito-Lay).  The Coca-Cola Company on the other hand only distributes beverages, and all the food and beverage bundles offered will most likely be through a partnership with a snack foods company (ie. Kraft, ConAgra, Sara Lee, etc).  Therefore, this point alone will not provide The Coca-Cola Company the same value of cost savings if they merged with their bottlers.

Also,  with PepsiCo’s added benefits of consolidating their manufacturing networks and seeing greater flexibility in market execution, The Coca-Cola Company has already started an initiative called the Coca-Cola Supply Chain.  This initiative restructures the Coca-Cola bottlers’ transportation and logistics system to provide more downstream control.  What this really means is that merchandising efforts, price structures, and promotion activites will be controlled locally in order to service customers better.  So PepsiCo’s consolidation and market execution efforts are already being explored by The Coca-Cola Company and their bottlers, without having to merge or acquire anyone.

It is still too early to see whether the Pepsi merger will have any affect on whether The Coca-Cola Company will merge with their bottlers.   The likely answer is no.  People must understand that when you’re not the market leader, you must innovate and try something different in order to have a chance to move ahead.  Similar to the famous tagline by the rent-a-car company Avis, they try harder.

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Glaceau’s smartwater coming to Canada

smartwaterSmartwater is vapor-distilled water with added electrolytes.  BevWire has found out that Glaceau will be introducing smartwater for Canada.  Within the next few weeks, smartwater will slowly be appearing on shelves in two Canadian markets: Toronto and Vancouver.  This brand of water for now will only be available in one size: 591ml.  In addition, only a select number of stores in both Toronto and Vancouver will be presented with the offer to carry this product.  There will be less than 200 stores Canada-wide that carry this product, and only places like Whole Foods, Choices, and Urban Fare will carry it.

Not that the brand is unsuccessful, but why introduce this product in such a small community?  And why only Toronto and Vancouver, not Edmonton, Montreal, or Ottawa?

Answer to the first question: Glaceau is using the “pull” marketing strategy.  Instead of selling or “pushing” the product into stores, Glaceau is letting the product slowly receive attention, gain traction and have customers request (or “pull”) for the product from other stores.  Also, this gives the company more power in deciding where to release this product.  By seeing the sample of stores that will carry the product at first opportunity (Whole Foods, Choices, Urban Fare, etc), it is understandable that the brand’s perception is for healthy living.  Both these stores and smartwater share the “healthy living” values.

Answer to the second question: Toronto and Vancouver both have a high proportion of inhabitants that embody the company’s “healthy living” value.  While Edmonton and Ottawa may also have people that live healthy, the majority of the people are not.  However, Montreal is a curious omission.  Montreal seems to fit into both criteria, but is not included in the cities targeted for the initial launch.  A possible reason is that The Coca-Cola Company, owner of Glaceau, has a weak prescence in Quebec.  The province has warm feelings toward Pepsi product, but traditionally is neutral or cold toward Coca-Cola products.  Therefore, for fear of a cold reception to a high potential product, Montreal has been left of the list of initial launch cities.

For those living in Toronto or Vancouver, feel free to go out and pick up a bottle of smartwater when it becomes available!

**UPDATE ** Glaceau’s smartwater is now available everywhere, find out more here.

Gatorade vs. Powerade ION4 Lawsuit Part II

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In an earlier post, BevWire indicated that PepsiCo was suing The Coca-Cola Company over their advertisements claiming that Gatorade was an incomplete  sports drink.  BevWire has found some recent developments saying that a federal judge has denied PepsiCo’s request for an injunction against Coca-Cola’s Powerade advertising campaign.

On August 5th 2009, Judge John Koeltl explained why he denied PepsiCo’s request.  PepsiCo had started testing Gatorade’s forumla with serious athletes in 2004 and found that calcium and magnesium – the two additional ingredients from Powerade Ion4 – were also lost in athletes sweating.  At that point, PepsiCo positioned its Endurance Formula sports drink with a message stating that these two additional ingredients were important for an athlete’s full functionality.  PepsiCo subsequently learned that The Coca-Cola Company was producing Ion4 and wanted to be first to enter the market.  However, PepsiCo could not find a strong source for the calcium ingredient and accessing the source would delay their entry into the marketplace and thus abandoned the idea.

Although the Powerade Ion4 advertising campaign ended in May, an important question to ask is: did the campaign work?  Some may claim it’s too early to say, but Powerade did gain some share points against Gatorade (for more information, read this post).  To BevWire, that makes the campaign a success, at least in the short term.

Evian’s new ad campaign: Live Young

Evian Live Young

Evian Natural Spring Water recently introduced a new advertising campaign titled “Live Young.”  This campaign aims to attract the “youthful optimism” and features babies roller skating.  The PR release says as follows:

“Evian Natural Spring Water is precious and pure; a miracle of nature! Every drop of Evian takes more than 15 years to filter through mineral rich glacial sands in the pristine French Alps, providing uniquely balanced mineral composition and natural purity. It is only appropriate that the brand should depict babies, a universal symbol of what is precious and pure, and embody the unique attributes of Evian Natural Spring Water.

“Live Young™,” Evian’s new signature message, is the ultimate expression of Evian brand values, including origin, health and youth.

For the first time, internet and social media are at the heart of an ambitious media campaign, including:

  • Two viral “teaser” videos already viewed by more than 500,000 times since their launch in early June
  • a new website – http://www.evianliveyoung.com – already hosting the viral films and the eagerly-awaited film as of July 3rd
  • influential bloggers already a buzz, and who will continue to talk about the new Evian Live Young campaign
  • YouTube will host the ad on its homepage on July 6th
  • more than 300 websites will run the 100% digital advertising campaign throughout the summer”

The timing of this advertising campaign is followed by the recent announcement of Evian’s continued partnership with the Olympus US Open Series tennis tournament.  Evian will be the official bottled water vendor to both the players and live event viewers, making the 500ml and 1L bottles for purchase.

Evian says their partnership with the tournanent continues because both share the same values – origin, health, and youth.  It might not be a stretch to say that all sports share the values of health and youth, but how does tennis show origin?  Maybe as an original sport?  And can’t the same be applied to all other sports out there?  The tennis sponsorship works fine, but another sport may work even better.  The other characteristic that both Evian and tennis seem to share is “premium.”  Hence a golf sponsorship may also work well.  An Evian-sponsored golf open would pretty good.  Not to mention all the product placements that would be made possible with this type of sponsorship: golf clubs, golf cart car tops, golf bags, pin flags, and many more.  Not to mention, Evian’s colors are white, blue, and pink.  The color pink would make a golf sponsorship all the more attractive if a portion of proceeds went to breast cancer research (piggybacking off the pink color themes).  A golf sponsorship sure seems like a good idea for Evian to explore if they haven’t already looked into this.  Let’s hope they take notice of this post and try to make this happen.

PepsiCo To Merge With Pepsi Bottling Group and PepsiAmericas

PepsiCo today announced that it has entered into definitive merger agreements with the Pepsi Bottling Group (PBG) and PepsiAmericas (PAS ) under which PepsiCo will acquire all of the outstanding shares of common stock it does not already own in its two largest anchor bottlers.  This merger is expected to give PepsiCo 80% of the daily management responsibilities of its two largest bottlers.

The total value of the shares that PepsiCo will be acquiring is about $7.8 billion, and the acquisitions will create one of the largest food and beverage companies globally. Based on the recommendations of the Special Committee of PBG and the Transactions Committee of PAS , the boards of directors of PBG and PAS , respectively, have approved the transactions.

PepsiCo Chairman and Chief Executive Officer Indra Nooyi said “PepsiCo has had a constructive partnership with PBG and PAS over the past 10 years. While the existing model has served the system very well, it is clear that the changing dynamics of the North American liquid refreshment beverage business demand that we create a more flexible, efficient and competitive system that can drive growth across the full range of PepsiCo beverage brands. Our shared culture, strong operational leadership and ability to successfully integrate operations – in this case operations we know very well – should allow us to bring the businesses together quickly and seamlessly.

“The fully integrated beverage business will enable us to bring innovative products and packages to market faster, streamline our manufacturing and distribution systems and react more quickly to changes in the marketplace, much like we do with our food business,” Nooyi said. “It will also make it easier to leverage ‘Power of One’ opportunities that involve both our beverage and food offerings, and for PepsiCo to present one face to retail customers. Ultimately it will put us in a much better position to compete and to grow both now and in the years ahead.”

“This transaction provides outstanding value for PBG shareholders, offers new and expanded opportunities for PBG employees and positions the combined company to accelerate growth going forward,” said Eric Foss, Chairman and CEO of PBG . “ PBG has a proven track record of success driven by best-in-class execution, consistently exceeding customer expectations and creating superior shareholder value. After a thorough evaluation process, the PBG Board concluded that this transaction represents full and fair value and is the best outcome for PBG shareholders, employees and customers. Ultimately, the transaction positions the entire Pepsi system to continue to win in the marketplace.”

PepsiAmericas Chairman and Chief Executive Officer Robert C. Pohlad said, “Over the past nine years, PepsiAmericas and each of our employees have helped build a remarkable organization. The success we have achieved is reflected in the agreement reached with PepsiCo. This agreement provides great value to our shareholders and an opportunity for them to participate in the unique potential of this combination. Bringing together these three great companies is bold and strategically innovative, and will create a system unmatched in our industry.”

PepsiCo cited a variety of positives stemming from this merger, and have listed the majority of them in their press release here:

  • Consolidation of 80 percent of the North American beverage volume will speed the decision-making process and eliminate friction points
  • Offering more compelling bundles across food and beverage and providing enhanced customer service nationally, taking the “Power of One” to the next level
  • Consolidation of manufacturing networks will provide cost benefits and also optimize our investments in growth and innovation
  • Greater flexibility in deploying multiple go-to-market systems to tailor distribution by channel
  • Elimination of redundant costs to leverage scale efficiencies

BevWire basically has listed the benefits before on a previous post, but the one that seems most attractive listed here is the offering of compelling bundles.  For example, PepsiCo preivously would have had to coordinate between PBG, PAS, and Frito-Lay if they were to run promotions for the NFL Super Bowl because each was a separate business unit.  Now that they are all under the same company, it will be easier to run these promotions and possibly promotions that are more aggressive in pricing since there are cost savings to be realized.  Instead of risking profits lost between negotiations the different business units, they are now all under the same company.

How will Coca-Cola respond?  Will they acquire their distributor, Coca-Cola Bottling?  Will they go shopping and look to buy another package goods company (ie ConAgra, Kraft, etc)?  It all remains to be seen, but in all likelihood Coca-Cola will stand pat and see how things pan out first before launching a response (if necessary).