Analysis: 

Juice Wars: the saga continues

by Hal Brown

3/15/01 -- Much has been made of the value of the Ocean Spray label. Proponents of selling the company to Coke, Pepsi, or another giant corporation, have pointed out that once a highly capitalized company decides to launch their own cranberry line the value of the Ocean Spray label diminishes. Companies like Coke and Pepsi make strategic decisions as to whether to position a new product within an existing brand name, or to create a new one. To demonstrate how easy it is for a corporation to create a brand name, consider the decision announced today by Coke's Minute Maid division to market a new not from concentrate orange juice under a new label, Simply Orange. (See press release below.)

Obviously Coke could have launched this competitor to Pepsi's Tropicana Pure Premium under the Minute Maid label; but they chose not to. Ray Crocket, a Minute Maid spokesman is quoted in the Wall Street Journal as saying: 

Simply Orange will be priced comparably to competing premium orange-juice brands. Mr. Crockett said Simply Orange will use Minute Maid's distribution channels and brokers, and its employees all will be employees of Minute Maid. "We wanted this company to have a different feeling from the larger Minute Maid Co.," he said. "We were doing a simple product here, and we wanted a simple, small-company environment."

If government regulators approve of the deal, Simply Orange will join other Minute Maid products in a new company to be jointly owned by Coca-Cola and P&G. Down the road, what's next? Simply Cranberry?

Coca-Cola is engaged in a massive restructuring under the leadership of CEO Douglas Daft, who was hired a year ago. This is described in this week's edition of Business Week (March 19, 2001).  The good news for our industry is that his plans include more cranberry juice products. From Business Week:

Donald W. Short, whom Daft hired to head up the joint venture with P&G, is already salivating over the prospect of creating extensions of P&G's nascent Elations cranberry juice - which has additives that help relieve pain caused by arthritis - and then pushing them through Coke's vaunted distribution network. Says Short: "If we have a broad range of products that are not medicinal, but almost medicinal, we could be in channels where Coke isn't today," such as health food stores.

As described in a Reuters article (bottom of page) both Coke and Pepsi are going to be shifting from pushing sales of carbonated beverages in schools to promoting juices. While the percentage of sales to schools is comparatively small for each company, any introduction of cranberry products to children and teenagers who would otherwise choose another beverage, can be a boon to the cranberry industry. As they get older, their association with cranberry beverages won't necessarily be the Ocean Spray label (presumably the choice of most moms at home), but could easily be the label of the drink they preferred in school. A recently released study by Nora Ganim Barnes, Ph.D. suggests that young men in the 19 - 35 age group age group are a vast untapped market for cranberries. (Article) The victory for their beverage preference is likely to go to the winner of the juice war in grade school and high school.

Where is Ocean Spray in the escalating juice war between Coke and Pepsi? At best they are merely a supplier, a middleman, that Coke and Pepsi will tolerate as a minor competitor. At worst, for the Ocean Spray juice company at least, they are a competitor better eliminated, which will be muscled out once Coke and/or Pepsi decide to secure another source of fruit from a handler that doesn't compete for shelf space. As has been mentioned before, one of the two could buy Northland while the other bought outright, or contracted with, several of the smaller independents.  

Money and fruit are ammunition in the juice wars, Coke and Pepsi have plenty of the former, Ocean Spray has plenty of the later. But every year one third of their growers can choose not to renew their contracts. If they go, they take their berries with them. If Coke or Pepsi decided to make Ocean Spray an also ran in the juice business, they could do so the good old fashioned American way by bringing out a competing product and advertising the hell out of it.

For the cranberry grower, handler loyalties aside, the more cranberries that are sold, the better. If there's going to be a Simply Cranberry (Simply Cranberry Grape, Simply Cranberry Apple, etc.) or a TropiCranberry in their future as farmers, with the marketing acumen and money of Coke and Pepsi growing demand as supply continues to increase, the cranberry crisis will end not because of the handlers current efforts, but in spite of them. 

Press Release

The Minute Maid Company Launches 'Fresh-Squeezed Experience'

APOPKA, Fla.--(BUSINESS WIRE)--March 15, 2001--The Minute Maid Company announces today the launch of Simply Orange(TM) not from concentrate orange juice. Positioned to be a premium player in the chilled orange juice category, Simply Orange offers a taste experience that consumers have said is comparable to fresh-squeezed orange juice, in a uniquely simple and clear carafe that seals in freshness and taste.

Simply Orange carries the name of the Simply Orange Juice Company, formed within The Minute Maid Company as a symbol for the new juice's ``close-to-the-tree,'' great taste.

Available soon in Original (pulp-free), Calcium Fortified (pulp-free) and Grove Made (high pulp) varieties, Simply Orange will be the only product carrying the Simply Orange Juice Company name. Each variety of Simply Orange provides an affordable alternative to fresh-squeezed orange juice.

The chilled orange juice category is estimated to account for about $3.1 billion in annual sales (Food, Drug, & Mass) in the U.S. By energizing the category with packaging innovation, Simply Orange is redefining packaged orange juice and repositioning the category for growth.

``Research reveals that many consumers perceive current national brands as over-processed and lacking fresh taste,'' says Bobby Patton, marketing manager for Simply Orange. ``According to focus groups, the ideal product provides a fresh squeezed orange juice experience - simple, pure, and nature's premium. Consumers tell us Simply Orange delivers the taste experience of fresh-squeezed juice.''

Simply Orange will be available initially to consumers in the Northeastern region of the United States starting in May 2001. (c)2001 The Coca-Cola Company. ``Simply Orange'' is a registered trademark of The Coca-Cola Company.

Reuters: Wednesday March 14, 5:37 pm Eastern Time

Coke Changes Controversial Drink Strategy

By Paul Simao

ATLANTA (Reuters) - Coca-Cola Co. (NYSE:KO - news), under fire from critics who have linked the sale of sugar-laced soft drinks in schools to childhood obesity and commercialization of education, said on Wednesday it would begin selling juices and other nutritional drinks to students as part of a makeover of its school marketing strategy.

The world's No. 1 soft drink maker also said it will work to lessen its commercial presence in school cafeterias and hallways by covering up giant company logos on vending machines and ending exclusivity contracts with educators.

Such contracts prohibited Coke's competitors from selling their products in certain schools. In return, schools received a larger share of the profits from Coke's vending machine sales.

The practice, however, prompted a backlash from educators who charged that schools were becoming mere marketing arms of corporate America.

``We think our products have an appropriate role in schools, but we just don't think that schools are an appropriate venue for marketing,'' Jeff Dunn, president of Coca-Cola's Americas business unit, told Reuters.

Dunn later told a luncheon in Washington that the ``pendulum has swung too far'' in the marketing of soft drinks to schools, and the commercialism surrounding the practice must be stopped.

Coca-Cola's about-face, which it said resulted from months of consultations with parents, teachers and administrators, came in the wake of growing concerns about the nutritional value of soft drinks and snacks sold in schools.

A study published recently in the British medical journal The Lancet suggested an extra soft drink a day increases the likelihood of children ending up obese. Obesity in children in the United States doubled between 1980 and 1994.

Asked whether he thought childhood obesity could be reduced by the company's new approach, Dunn said a lack of physical activity as well as diet were to blame for weight problems.

The U.S. Agriculture Department has asked Congress for authority to regulate what foods and beverages could be sold to schoolchildren. An estimated 200 schools in the United States have contracts with Coca-Cola and other soft-drink companies giving them exclusive rights to sell their products.

Coca-Cola's main rival, PepsiCo Inc. (NYSE:PEP - news), said it already was marketing its water, juice and other ``healthy beverages'' in schools. ``We've always offered the schools a choice,'' Pepsi-Cola spokesman Dave DeCecco said.

The Purchase, N.Y.-based company added that it did not typically require schools to sign exclusivity deals.

COKE BOTTLERS SUPPORT CHANGES

Dunn, who noted that Coca-Cola has 50 years experience ''helping'' schools, said the controversy over exclusivity contracts and the marketing of soft drinks in schools had

turned extremely negative in the past several years.

Coca-Cola's bottlers supported the move to end contracts that had sparked ``cola wars'' in school districts across the nation, he added.

The changes would allow schools to limit the sale of soft drinks at certain times during the day, Dunn said. New drink products will probably be in Coke's 100,000 school vending machines by September.

Jerald Newberry, executive director of the National Education Association's health division, welcomed Coca-Cola's change in policy and said he hoped others would follow suit.

``We are particularly concerned with childhood obesity and diabetes and applaud such a strong public stand which will positively affect the health of America's children,'' Newberry said.

Analysts said it was premature to gauge the impact of the marketing change on Coca-Cola's sales, but they noted that schools represent a small percentage of the company's unit case volumes in the United States.

Credit Suisse First Boston analyst Skip Carpenter said the move could end up enhancing Coca-Cola's business, which is expanding from soft drinks into health, nutritional and sports beverages.

``They recognize that other beverage categories are seeing greater growth and there is a consumer preference change, especially among the youth,'' said Carpenter, who added that the move also reflected Coke's desire to improve relationships with consumers, regulators and government officials.

Coca-Cola recently embarked on partnerships with consumer products giant Procter & Gamble Co. (NYSE:PG - news) to market snack foods and fruit juices and with Swiss food giant Nestle SA

for tea-based drinks and other beverages.

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