There’s a lot of discussion right now – in a lot of well-read places — about what a great move the Coca-Cola Co. made in picking up Glaceau, and rightly so – the company makes a product that is edgy enough from a design standpoint to attract the folks on the coasts while offering a straightforward set of benefits that shouldn’t confuse (sorry about the geographic bias) consumers in the flyover states. Vitaminwater (the chief Glaceau product asset) possesses the right basic mix of the stylish promise of functional hydration with the always-important element of flavor (read: sugar). In other words, Vitaminwater tastes good, it’s well-marketed and tied to the right mainstream athletes and celebrities, and, as we’ve said before, it’s got that “Gatorade Factor” that identifies a need for something among consumers that they didn’t know they had before.
We’re not going to break down the economics of the deal – that’s for the analysts to do, and it’s both speculative and of a scale that’s beyond our comprehension. (In fact, it’s beyond the comprehension of another popular bought-out beverage exec as well, who recently told us that while “you can blow through $50 million,” when it comes to the billion or so that Darius Bikoff – Congrats, dude! Enjoy remodeling the new townhouse! – will clear in the deal, well, “you can’t spend that!”
What we can break down is the comparison game. Since the buyout discussions started, there have been three analogous transactions thrown around (none of them, it should be noted, by Coke, which may be why they felt so motivated to make the purchase in the first place): the PepsiCo/Quaker (i.e. Gatorade) deal, the PepsiCo/SoBe pickup, and the Cadbury/Snapple purchase. These comparisons make sense in terms of dollars (all were at least a billion) and in terms of the fact they involved the hot new age beverage of the moment, but we’re still not sure they’re apples to apples deals, particularly in terms of where each specific New Age beverage brand was in their particular product life cycle.
Obviously, Coke would be thrilled if they come away from the deal smelling like Gatorade – it’s the brand that’s had the most impact and runaway success in its category. There are a good number of parallels that fit – as we noted above, there’s that air of flavor variety mixed with a previously unidentified functionality, there’s plenty of packaging innovation, and there’s a strong cultural hook to the stuff. Similarly, there’s plenty of room for expansion of the brand, both in terms of saturating the rest of the
Of course, when it comes to bad deals, hindsight is a great advantage. Nevertheless, Coke doesn’t want to be seen as having executed a deal that’s equivalent to the Snapple or SoBe deals. The Snapple purchase has been derided as an example of a company overpaying for a tired product and then trying to bring it into its own system far too quickly. It also may have been too much of a reach for a foundering Cadbury Schweppes at the time. SoBe is just an example of a poor cultural fit, one where big corporation’s influence took all of the steam out of a rebel brand, one that hadn’t yet clarified its national consumer base at the time of its purchase.
There are several factors likely to keep those two less-attractive scenarios from happening. Most important is the issue of need. As has been stated over and over again, Coke needed a non-carb, and Glaceau was arguably the most mature one available (