Gerry’s Insights: New Platform Shoes for the Big BevCos

For a newsletter editor like me, striving to put out three issues every week, you can’t hope for news cycles much better than this one. In barely a week, we saw a stunning sequence of developments. On Monday, Aug. 20, PepsiCo announced it was purchasing SodaStream for $3.2 billion. Thursday brought Campbell Soup declaring that it would seek a buyer for the $2 billion Campbell Fresh division built around Bolthouse Farms. And just as everyone was finalizing their Labor Day weekend plans, Coca-Cola announced it would be buying the world’s second largest coffee chain after Starbucks, the UK-based Costa Coffee Ltd. Coke’s new CEO, James Quincey, was gracious enough to apologize for giving everybody one more chore before the weekend, but that’s a lot of news!

Conveniently for this column, those three stories all involved what folks these days like to call new “platforms.” In that way, they reflect the big CPG companies’ awareness that they need to move outside their comfort zones to follow consumers and to accommodate the disruptive technology waves that are tearing through the business. The Coke and Pepsi announcements were affirmative moves to capture new platforms, while Campbell’s marked a humiliating retreat from what had once been touted as a growth engine. It might be illuminating to delve into the dynamics behind each.

For PepsiCo, the SodaStream deal will accelerate the moves it has already made to build a direct-to-consumer platform, one in which its contacts with consumers are not mediated – and potentially distorted – by intervening layers of distributors and retailers. Sure, SodaStream is a retail brand, but it has been building an increasingly compelling DTC arm, boosted by the ease with which its expendable items like flavor units can be ordered online. There’s no question that degree of direct interaction with its consumers gave Starbucks, for example, an advantage in its incredible global expansion. Similarly, in this digital age, a direct-to-consumer platform allows companies to not just control the parameters of the interactions with users but to capture vast amounts of actionable data, rather than relying on vague syndicated research or data that’s controlled and filtered by a third party like Amazon.

With SodaStream, Pepsi gets a player that lends itself to the DTC model. Augmenting efforts Pepsi has made on its own And if some sparkling beverage volume is moving to at-home-created items, PepsiCo gets a good piece of that, rather than seeing the proceeds flow to a rival. The execution risk includes integrating an appliance business with an RTD beverage business, but hey, that’s precisely what Keurig is managing through with its acquisition of Dr Pepper Snapple Group. Also, I haven’t heard anything said yet on what Pepsi will do to appease its bottlers, and that is certain to be on the agenda as PepsiCo apparently moves forward with plans to refranchise its U.S. territories. But that’s why they call it disruption. Pepsi’s base business is going to get disrupted no matter what; now, it will have another seat at the table.

With the Costa deal, Coca-Cola is making an even bigger bet, not just because of the hefty price tag but because operating a retail business is an even bigger stretch, as Starbucks’ Howard Schultz was quick to note to one media outlet. But it finally gives Coca-Cola a brand many consumers perceive as authentic, after an earlier venture with the elite Italian roaster Illy sputtered out, and as a complement to less coffee-forward entries put out under the Dunkin’ Donuts, McCafe and Monster brand names.

Under Quincey, the Coke team seems to be presuming that its coffee cred can only get a big lift from operating a business that does its own roasting, has an expanding network of stores to serve as new-product laboratories, and seems to have been embraced not just in Europe but in China. In making the announcement, Quincey indicated that, aside from a flagship store, he doesn’t envision expanding the Costa chain into the crowded North American market, but rather using it as a platform for bagged and ready-to-drink entries in coffee and maybe tea and cocoa, too. True, there’s plenty of operational risk for a company that had long prided itself on a simplified model in which it just sells concentrate to bottlers who have to operate the production plants and delivery fleets, and that recently completed an arduous refranchising of company-owned bottling operations to outside owners. But, just as it’s keeping a hand in hot-fill manufacturing, Coca-Cola feels it has to learn how to play more adeptly in coffee and in hot beverages generally. This gets it in the game.

So count SodaStream and Costa as risky but exhilarating ventures. That brings us to Campbell Soup. Its former CEO, Denise Morrison, was among the first Big Food leaders to speak to shareholders about the ways in which the growth and premium pricing and general excitement at grocery was heading to the perimeter aisles, and away from the shelf-stable center-store aisles that companies like hers have dominated. She certainly deserves great credit for sounding that alarm.

That led to the 2012 acquisition of Bolthouse Farms, which was supposed to put Campbell Soup squarely in that game and serve as the base for further acquisitions on the food. At the time the deal closed, Morrison joked that executives from the company’s Camden, N.J., headquarters would be required to carry a passport to visit Bolthouse operations in Bakersfield, with the incumbent team left to operate the business unencumbered by corporate bureaucrats. Soon enough, though, the wheels fell off, with protein drinks recalled and the company suffering a backlash from carrot customers offended by a deterioration in quality. Before long, Morrison stamped a bunch of passports for Campbell Soup lifers to take over management of the faltering unit and she returned to the safe harbor of shelf-stable products with the acquisition of snack maker Snyder’s-Lance. The price tag on that was steep enough for the deal to signal a decisive end to the Campbell Fresh strategy. So it did not come as much of a surprise when Morrison soon departed and the company put Bolthouse on the block.

What’s the lesson from Campbell Soup’s move to kick off its platform shoes? Not necessarily that it should never have undertaken the effort in the first place. The execution challenges Campbell Soup brass encountered have done nothing to contradict Morrison’s initial assessment of where the food business is going. Nor has the company’s change in direction via the Snyder’s-Lance deal done anything to quiet shareholders. So the lesson is self-evident. New platforms by definition are difficult. Progress marches forward. And at the Big Three soda players in particular – each with a new or soon-ascending CEO – I expect the gambles on new platforms to only accelerate from here.