It is rumored that Coca-Cola may renegotiate the terms of its joint venture with P&G. While both firms seem eager to complete the juice and snacks venture they announced in February, the conditions are overly favorable to P&G. The current deal aligns Coke’s stronger selling brands with P&G’s more mediocre products, which seems contrary to conventional industry thinking.
Coke should use its stronger negotiating position to get a better deal. Coca-Cola and Procter & Gamble (P&G) originally announced in February that they would join forces to create a new company, called Simply Juice, uniting their snack, juice and fruit-drink businesses. It aimed to market products as Minute Maid, Sunny Delight, Fruitopia and Pringles, and also develop and market new juices, juice-based beverages and snacks. Executives estimated it would have annual sales of nearly $4.2 billion.
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However, a source familiar with the negotiations this week said while both firms remain intent on forming the joint venture, the due diligence process has turned up some details that might affect the terms of the deal. In its zeal to retain its position against rival Pepsi, which in recent months has made a number of moves – including the purchase of Quaker Oats Co. and its $2 billion a year Gatorade franchise -to strengthen its position in the beverage and snack foods markets, Coke may have led itself down the wrong path.
The company risks negating the potential benefits of developing its own juice division by aligning its products with P&G’s line of snacks, which has not performed as well. Coke would have to turn over half the profits of its existing juice business to P&G, whose interest in the deal lay in its own flagging sales of its food and beverage products.
While most believe the deal will end up going through by the end of the year, industry pundits are unsure how the final structure will look. Coke may decide to focus on building its own juice market strategy, while using P&G’s brands as leverage in expanding brand awareness and marketing opportunities. Alternatively, the two companies may co-operate in the R&D process without actually integrating operations.
It is certain, though, that Coke is dealing from a stronger position than P&G, so should structure any venture deal on its own terms. Any alignment with Coke’s brand name will be helpful to P&G’s food and beverage business in the long run.
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