Procter & Gamble and Coca-Cola have announced plans for a joint venture. The new business unit will have initial sales of $4 billion from a range of Coca-Cola and P&G products and is expected to increase this figure to $5 billion within two years. The combined support of the two corporate giants will cause fear in the soft drinks and snacks sector, potentially triggering defensive action in the near future.
After last year’s disappointing sales results, Procter & Gamble and Coca-Cola are teaming up to give themselves a boost. The new venture has been set up to cater for the growing demand in innovative juices and snacks and will incorporate such brands as Minute Maid, Five-Alive, Fruitopia, Sunny Delight and Pringles.
The enterprise is to be headed by Coca-Cola’s Don Short. The two parent companies will each own 50% and provide two executives for the venture’s board of directors. “Our investment with P&G will enable this company to focus its energies on creating even more health and wellness product offerings faster and more efficiently than either company could do on its own,” commented Coca-Cola.
P&G will now have access to Coca-Cola’s worldwide distribution network, consisting of 16 million outlets. The 1.5 million US outlets could potentially increase the distribution of Pringles 10-fold in America alone. In return, Coca-Cola can reap some of the benefits of P&G’s research and development efforts. P&G holds over 3000 food and drink patents, 1300 of which are related to snacks and beverages, and applies for about 300 more each year.
The venture will have sales of $4 billion from the outset, and is expected to increase this to $5 billion within the first two years. It should also bring about extensive savings and revenue enhancements, through extended and shared distribution arrangements along with reduced manufacturing, administrative and purchasing costs. These synergies have been valued at $1.5-2 billion per year.
The news will have come as an unpleasant surprise to PepsiCo, which currently dominates the juices and savory snacks market. The two giant corporations will create a formidable team on a global scale and are likely to have put Pepsi, along with a host of other competitors, on their guard. Assuming the deal manages to get regulatory approval, it is unlikely to be long before there is further action in the soft drinks and snacks sector.
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