Coca Cola has announced that it will scale back plans for its joint venture with Procter & Gamble.  The decision to abandon plans to develop a stand-alone enterprise with P&G has been welcomed with relief from shareholders. Although the initial plans were poorly aligned in P&G’s favor, Coca-Cola is on the right track to develop its non-carbonated offering and will still be keen to secure a smaller deal to benefit from P&G’s R&D expertise.

Coca Cola

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The original deal between Coca-Cola and Procter & Gamble (P&G), announced in February, was to unite their snack, juice and fruit-drink businesses to form a standalone enterprise, leveraging Coke’s distribution and P&G’s R&D capability. Whereas Coke would have donated Hi-C, Five-Alive, Fruitopia and the fast growing Minute Maid juice brand, P&G would contribute under-performing Pringles and Sunny Delight brands.

From the plan’s inception, Coke had received widespread criticism as observers questioned the wisdom of aligning its stronger-selling brands with P&G’s more mediocre products. Coke was accused of being ‘blinded’ by its desire to regain its lead over archrival PepsiCo in the fast growing non-carbonated soft drink sector.

In the major developed soft drinks markets of western Europe and the US, growth is coming primarily from new categories such as bottled water, iced tea and coffee, juices, sports and energy drinks and ‘new age’ beverages. The key to success in these markets is the ability to innovate and keep in touch with changing consumer demands.

Whilst Coke will not develop the $4 billion behemoth that was predicted from the venture with P&G, it is likely to pursue some sort of partnership, as it still values P&G’s product development capabilities. Equally, P&G can still benefit from Coke’s distribution for its ailing food and beverage division.

PepsiCo has won the first round of competition in these emerging categories, but Coke is ready to seize the initiative. Its reorganizational strategies include building teams of between eight and twelve people (from flavor chemists to marketing executives) to develop new ideas from inception to release.

Coke has also obtained a rapid response mechanism in the iced tea and coffee and ‘new age’ beverage categories by allying itself with a highly focused specialist, through its joint venture with Nestle. The partnership with P&G will provide the ability to bring new products to market rapidly. As demand changes and new trends develop, Coke’s new rapid response system should provide clear advantages in the long term.

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To view related research reports, please follow the links below:- Fruit Juices: The International Market Coca-Cola & PepsiCo: From Age Old to New Age

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