Analysts are positively upbeat about the US$13bn Pepsi/Quaker deal. It has even been described by some as "one of the most important acquisitions for a very long time." Sarah Diston reports on what the experts are predicting for Pepsi and the consequences for its soft drink-rival Coca-Cola now that Quaker is firmly under Pepsi's control.

Since PepsiCo announced its acquisition plans in September 2000, industry speculation centred on Quaker's no.1 isotonic drink Gatorade, which Dick Detwiler of PepsiCo says commands 85% of the US sports drink sector. However FTC approval of the deal has shifted excitement among analysts from Gatorade to the whole new Pepsi/Quaker brand portfolio.

Coke remains the global brand leader by far. But with Pepsi now being described by one analyst as a "premier branded consumer company" the no.2 cola giant with the Quaker deal now firmly under wraps has put itself in a prime position to grab shares in whichever market it chooses to target.

"The whole Quaker deal is an important one and one of the most important acquisitions we've seen for a long long time"
David Jago

"The whole Quaker deal is an important one and one of the most important acquisitions we've seen for a long long time. And I think it's going to have huge benefits for Pepsi as a group," says David Jago industry analyst for beverage research group Mintel International.

"Pepsi has a very good brand portfolio, it is in all the right areas too or can easily be moved into the right areas. And the Quaker deal is going to mark a move by PepsiCo into food rather than beverage areas because a huge part of its revenue will now come from food rather than beverages," he adds.

It is no secret that the experts consider Pepsi to be back in the big time. And Pepsi too is not slow in saying how pleased it is now that Quaker is under its control.

"We are very excited about the merger because it creates so many growth opportunities that really cross all of our businesses," says Dick Detwiler for PepsiCo.

"It's a very very good fit with PepsiCo's portfolio not just in beverages but in snacks as well. If you look at the food brands, the Quaker brand, Cap'n Crunch and others, these are brands which we think represent big opportunities in other categories, particularly in convenience foods, snacks, that type of thing.

"We can conceivably develop a Cap'n Crunch dessert bar for children or something like that, we see a lot of opportunities with this combination.

"The Quaker snacks will enhance the Frito Lay portfolio, enabling it to branch out beyond traditional salty snacks into more wholesome snacks. And the addition of the very large and efficient Quaker warehouse distribution system should provide some big benefits to Tropicana," he adds.

Hence it is Pepsi's juice brand Tropicana, which will be the first big brand to take advantage of the new Pepsi/Quaker business. By dropping Tropicana into the same distribution system that has helped Gatorade gain its 85% share of the fast-growing US sports drink sector, Pepsi has obviously done its sums and the potential for Tropicana, if handled correctly, could be enormous.

As an industry expert said: "It could prove interesting."

One analyst told just-drinks: "What appears to be happening is Pepsi is trying to use the Quaker distribution and work Tropicana through Gatorade when most people were expecting Pepsi to put Quaker through Pepsi's distribution."

Neil Broom at beverage research company Datamonitor says: "Gatorade has got to be a 'must stock' brand, given its high market share. It's not only strong on its own, it has great extension potential and it gives Pepsi the added power in the distribution system. So if it's not adding breadth it's certainly adding depth."

By commanding such a big share of the sports drink sector, Gatorade by standing alone has not got too much to worry about for the time being. Monarch Beverages is now the new owner of Pepsi's cast-off brand All-Sport, and Coca-Cola's Powerade commands a 15% share of the market, which is slight in comparison with the 85% share enjoyed by Gatorade.

But with so much strength globally and such enormous international presence Coca-Cola's announcement this week that it has relaunched Powerade in the US was not entirely unexpected.

If anyone were to put Coke's might behind any brand, unless they had got it radically wrong, some volume would be shifted at least. Coke is going to want to see its Powerade share climb. But will Coke's strength alone be enough to grow Powerade's market share? It isn't going to be easy.

"Gatorade's not only strong on its own, it has great extension potential and it gives Pepsi the added power in the distribution system"
Neil Broom

One industry professional says: "The Quaker deal has been on the cards for a while, it's bad news for Coke but they will continue to plough on as best they can. And this is the best time for Coke to relaunch Powerade, just before Pepsi do anything with it."

"I think Coke will really struggle but they will battle it out to boost Powerade sales and they will increase sales because the market is growing. But I don't see them significantly increasing market share," says another expert.

"In value terms it will be bigger, but in market share they won't get close to the 85% share Gatorade has," he adds.

Although the carbonates war is over the Powerade versus Gatorade battle is only just warming up. But it is inconceivable to imagine that two such mighty companies will concentrate their efforts on just one sector.

Pepsi is now seen as a much stronger 'all-rounder'. Coke on the other hand will continue to look at potential markets but will want to differentiate itself from its rival. Instead of being seen as always fighting head on with Pepsi, the cola-giant will no doubt want to carve out other niches in other markets.

Meanwhile Pepsi is happy just to be able to get on with it.