PepsiCo has taken a major step back from the juice business through the sale of Tropicana, Naked and its other juice brands in North America, the company announced this morning.
What is the deal?
Under the terms of the deal, Paris-based private equity firm PAI Partners will pay $3.3 billion for majority control of a new joint venture housing the brands, with Pepsi retaining a 39% stake. The soda giant will also hold on to distribution rights to the brands in its refrigerated DSD network.
In a press release, PepsiCo Chairman and CEO Ramon Laguarta said the deal would allow the company to focus on its current product portfolio and growing categories like “healthier snacks” and zero-calorie beverages, as well as its SodaStream business.
“This joint venture with PAI enables us to realize significant upfront value, whilst providing the focus and resources necessary to drive additional long-term growth for these beloved brands,” said Laguarta.
Who are PAI Partners?
The French investment group’s previous CPG investments include ice cream maker Froneri and Dutch bottling giant Refresco. With this transaction, the group acquires a major footprint in North American consumer beverages.
“We are delighted to bring these storied beverage brands into the PAI portfolio through another partnership with a leading global food and beverage company. We believe there is great growth potential to be realized through investments in product innovation, expansion into adjacent categories, and enhanced scale in branded juice drinks and other chilled categories,” said Frédéric Stévenin, a Managing Partner at PAI, in a press release. “We are also thrilled that PepsiCo will remain involved as our partner in the joint venture as we execute our plans to drive the future success of these brands.”
Why make the deal?
Perhaps the better question is, why not? With its attention shifting to categories like plant-based, energy, functional and even mixers, Pepsi’s interest in Tropicana has been de-prioritized. Though it markets a variety of fruit juice products, the label, acquired for $3.3 billion in 1998, has remained largely leveraged in high-sugar commodity categories like fruit juice and lemonade. Meanwhile, Naked, is just the latest name in a list of pioneering premium juice brands — such as Odwalla, BluePrint and Suja, among others — to have been sold or discontinued in recent years
Pepsi’s desire to focus resources and attention on a smaller group of stronger categories isn’t unique, according to Howard Telford, head of soft drinks at Euromonitor International. Under the banner of “SKU rationalization,” Coca-Cola last year discontinued one of Naked’s chief rivals in premium juice, Odwalla, along with Zico, TAB and others. Elsewhere, Nestle offloaded its North American bottled water business to a private equity buyer in order to buy a stake in the premium water business through Essentia. The long-term trends in fruit juice are still declining despite recent gains, he noted, and the “role of fruit juice in future consumers’ diets will look significantly different in terms of portion size, functional need and packaged versus unpackaged formats.”