Having reportedly learnt “new things that it didn’t know going into the deal” US beverage giant Coca-Cola is now expected by market watchers to alter the terms of its US$4.2bn juice and chips joint marketing venture with US consumer products conglomerate Procter & Gamble. Sources at the beverage giant have insisted however that it is continuing to conduct due diligence on the deal, and that it will be closed by the end of the summer.
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It was announced in February that the giants would join together their Minute Maid orange juice (Coke) and their Sunny Delight and Pringles brands (P&G) to create Simply Juice, a company that will create new health-oriented juice drinks. Initial operations would involve 40 brands, and the companies revealed that they expected sales to reach US$5bn within two years. Cost synergies were also expected to save US$200m by 2005.
Despite having all the advantages of Coke’s worldwide distribution system and P&G’s well-established research and development arm however, analysts have been sceptical about the future of such a deal. In particular, Coke has been criticised for embarking on what analysts predict will be an unsuccessful trade off, poor profit growth in return for underperforming brands. As a brand, Minute Maid is growing at 2% a year, while Sunny Delight saw sales plummet 10% last year. Pringles sales are also declining, and analysts point out that Coke bottlers may be reluctant to deal with the less profitable snack foods.
Despite the apparent issues with the deal, Atlanta-based Coke has remained committed to the idea that its path to boosting global volume will include joint projects. Earlier this year, it established a New Business Ventures unit to manage such ventures. The linkup with Pringles snacks operations is considered particularly important if it is to rival PepsiCo’s “Power of One” snacks and drinks strategy.
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