Cott Corporation's acquisition of UK drinks company Macaw cements its UK division's position as the leading producer of own label soft drinks in the country. Annette Sessions assesses the deal and reports on the current state of play in the British own label market.

The recent acquisition by Toronto-based Cott Corporation of Macaw Soft Drinks Ltd further boosts Cott's status as the UK's largest supplier of own label soft drinks. Cott, the largest supplier of own label beverages in the world, acquired Macaw earlier this month in a deal worth around US$135m, and the acquisition is expected to add £55m to its UK turnover.

An erstwhile rival of Cott, Macaw Soft Drinks was founded in 1990 by Andrew Cawthray and began producing carbonates on a 34,000 sq ft site in Nelson, Lancashire. Since then, Macaw has grown into the UK's largest privately-owned manufacturer of own brand carbonates in the UK.

The company has six production lines, four for carbonated soft drinks, one for dilute-to-taste and one aseptic, the latter vital for the development of its own H2 range of still drinks comprising H2 water, H2 Sport and H2 4 kids.

Macaw manufactures own label brands for all major multiples, but its most important clients are Tesco, Asda and Morrisons. It has the contract to supply Sainsbury's classic cola and produces the PET bottled Tesco Kick (Cott, incidentally produces the cans). Last year, the company began production of Ocean Spray white cranberry.

A key feature of the acquisition is Macaw's £11m aseptic production line commissioned in October 2002. Boasting the latest Italian technology, it enables still drinks to be bottled in PET without the need of preservatives.

The cold fill production process uses flash pasteurisation which ensures excellent product quality appealing to today's ubiquitous health-conscious consumer - the consumer now targeted for much of new product development within soft drinks.

The technology can be used in a raft of new drinks embracing the vogue for new flavours, herbal infusions, added vitamins and minerals. It will greatly enhance Cott's production capabilities.

According to Andy Muffin, managing director of Cott UK and Europe, the combined company and its four plants will have about 60% of the UK market for own brand soft drinks.

The news has been well received by financial analysts. Merrill Lynch, for one,  upgraded Cott Corp. to 'buy' from 'neutral', citing the "transformative" nature of the Macaw Soft Drinks acquisition. The broker told clients that this acquisition bolsters Cott's share of the UK private label carbonated soft drinks market to more than 60% and has provided the company with much needed additional capacity and new manufacturing capabilities to broaden its product offerings to retailers.

Cott's UK division operates from two manufacturing plants in Pontefract and Kegworth. The division recently reported 12% growth in sales in the second quarter compared with the previous year.

Its fortunes, though, have been somewhat mercurial, mirroring in many respects those of own label.  The company grew in the UK in 1994 with the acquisition of assets from Ben Shaw (Pontefract) Limited, followed by the purchase of Hero Drinks Group (UK) Limited in 1997, but by 1999 Cott UK acknowledged that it was a division which "had lost its way".

With a new management team in place a cost-cutting restructuring programme  was implemented which resulted in a leaner and more efficient business with the declared intention of growing through innovation. At the time, Cott developed such drinks as an energy/cola mix called Edge and an organic flavoured carbonate drink, Fruitfull.

Twenty or so years ago the brand was king, but in the 1990s own label came to the fore as retailers realised they could improve margins by managing certain products themselves, thus building a stronger relationship with their customers.   A signal moment was the launch of Sainsbury's Classic Cola in 1994 which injected the concept of retailer branding.

Since then, exercising the sort of marketing muscle that only they can muster, brands have successfully fought  off the 'me-too' drinks and in many categories  own label has reached a plateau. Market analyst Canadean reports that prior to 2004 own label water products, for example, had outperformed brands, but that in 2004 brands actually outperformed own label products.

In carbonates, own label has consistently been outperformed  by brands, principally because of the huge amounts of money invested in marketing by brands.

In the juice sector, however, own label sits happily alongside brands as consumers perceive juice as a commodity. Retailers own labels - produced in the main by Gerber and Princes - keep abreast with consumer trends, flavour developments and lifestyle choices. Indeed many own label juices such as the Sainsbury's Parrots range have developed into brands in their own right.

Own label also scores well in squashes, partly by dint of the fact that it is the most mature of all the soft drinks categories. Hitherto, Princes has dominated the production of these drinks, but Cott will now be eating into that lead.

As for energy drinks, own label has grown quickly led by Cott. This category was boosted in 2003 when Tesco delisted Red Bull for a few weeks following a disagreement over pricing.

The acquisition affords significant opportunities for Cott in the still drinks category. Historically own label penetration has been slow, but all is changing driven by new sub-categories such as own label flavoured waters.

Further goods news from Cott is that it is now producing The Simpsons range of health-conscious juice drinks and dilute-to-taste, in conjunction with the relaunch of flavoured waters. These new product developments capitalise on both the growing trend towards healthier drinks and the huge popularity of The Simpsons franchise.