Comment - Soft Drinks & Water - Ribena and Lucozade: Cash In, or Invest?
Earlier this month, UK pharmaceutical and "consumer healthcare" conglomerate GSK took a look at its Lucozade and Ribena brands, and set itself a choice: Does it sell the two, or does it look at setting up an investment programme? Richard Corbett considers the firm's dilemma.
Ribena and Lucozade are almost as old as the Queen and are every bit as British. They are as part of the culture as Marmite, fish and chips and grumbling about the weather. Now, it seems that these two iconic British brands could be about to enter a new phase in their lifecycle following the announcement that owners GlaxoSmithKline (GSK) is conducting a strategic review that may even result in their sale.
Both brands have medicinal roots and it is this factor that is responsible for them falling under the ownership of the pharmaceutical giant GSK. Several generations of British and Irish consumers will have first been exposed to Lucozade during a period of ill health when their mothers would feed them grapes and dispense a spectacularly orange liquid from a distinctive bottle dressed in bright cellophane wrapper. ‘Lucozade aids recovery’ was the strapline.
Being made from blackcurrants, Ribena was positioned as an excellent source of Vitamin C and, in the early days, was often served hot. Even today in Denmark, where Ribena has attracted quite a following, sales are said to be higher in the winter months when people are looking to fight off colds by increasing their vitamin C intake.
GSK adopted a strategy to dilute the brands’ medicinal associations and significantly increase the drinking occasions appropriate to their consumption. From the mid-1980s, Lucozade no longer aided recovery it ‘replaced lost energy’. Long before the arrival of Red Bull, Lucozade had evolved into an everyday energy drink. A non-fizzy ‘sports’ drink extension was launched to further widen the appeal of the brand. The glass bottle was sidelined and replaced with PET to encourage more ‘on-the-go’ consumption. It was all very pioneering.
With Ribena, GSK opted to focus on developing the ready-to-drink format with the school lunch box and impulse consumption a major focus. Carbonated alternatives were also launched, although these had less success.
In terms of distribution, GSK began an aggressive process of putting their own chiller cabinets and vending machines into as many outlets as they could to drive convenience demand and supplement their supermarket sales.
Gone were the days of advertising on the back of buses, after the revolution, Lucozade and Ribena were supported with extravagant advertising budgets that competed with the Coca-Colas of this world. Top sportsmen and women were recruited to push the Lucozade brand and sponsorship deals saw the Lucozade logo at sports venues across the land. The strategy proved massively successful and GSK has made a lot of money out of its soft drink brands.
Perhaps the trouble for GSK is that it has been too successful at making the transition from medicinal accessory to mainstream soft drinks. The pharmaceutical company might now be thinking; we sell drugs not soft drinks, should we not be sticking to our core business? It has already begun reigning in the spending, announcing back in October that it is ending its 20-year Lucozade sponsorship of the Premier League. This suggests change is in the air.
If GSK do put the brands on the market there will be plenty of suitors. Lucozade in particular would sit comfortably in anybody’s drinks portfolio. It offers a relatively unique proposition that has proved very resilient. Private label 'me-too' products have met with a muted consumer response, while the arrival of Red Bull, which you might have thought may have had an effect, had a limited one: Lucozade stimulated the body and Red Bull the brain. Ribena, too, would be unlikely to cannibalise the portfolios of any big soft drinks players because Ribena is so closely affiliated to one flavour. Despite getting into some trouble a few years ago with claims made about the Ribena Toothkind launch, both Ribena and Lucozade enjoy a good reputation among consumers and that has a value.
Should the merger between AG Barr and Britvic go ahead as planned could this be an opportunity for the newly-formed Barr Britvic Soft Drinks to make a move, or will Coca-Cola utilise its resources to bring onboard two products that have been a thorn in their side in the convenience channel? Maybe Suntory might want to add two premium brands to its portfolio as part of its expansion plans. Any sale would generate plenty of cash for GSK.
Of course a sale is just one option, GSK may simply decide to look for new avenues to push up sales. It is likely that maintaining sales momentum in the UK and Ireland is becoming more challenging, in which case export markets could represent the pot of gold at the end of the rainbow.
GSK talked of having “limited geographic footprint” for the two but, according to Canadean, a third of sales of Ribena stem from beyond the UK and Ireland - 14% of Lucozade's sales, also. Exports are an important driver behind current growth levels and there is certainly plenty of slack to exploit. Lucozade is now selling more than 10m litres in China and, as they say, small acorns grow into big oak trees.
Cultivating that acorn however is expensive and that is the crux of the issue. Do they cash in or invest?
Although AG Barr was on its way to the church earlier this month, Britvic was still having second thoughts. The end of the affair leads Richard Corbett to ponder what went wrong for the two and what h...
According to the global company website, Red Bull is focusing on the core markets of Western Europe and the US, as well as the growth markets of Brazil, Japan, India and China. The company is also con...
MarketLine's Company Mergers & Acquisitions (M&A), Partnerships & Alliances and Investments reports offer a comprehensive breakdown of the organic and inorganic growth activity undertaken by an organi...
The company is focused on following three main strategies in 2013 in order to maintain its presence as one of the leading soft drinks manufacturers in the UK. These are innovation, increased distribut...
As explored in Global Sports and Energy Drinks: Where Consumer Lifestyles and "Lifestyle Branding" Meet, energy drinks across the world are positioned and marketed in different ways....
- No Home Comfort for TWE as Bids Collapse
- Treasury Wine Estates: Here I Go Again On My Own
- Bacardi Seeks Own History at Bombay Sapphire Home
- Will low-alcohol wines wither on the vine?
- Coca-Cola Life US launch fails to ignite
- Diageo's Johnnie Walker hit by Travel Retail slump
- Carlsberg suspends production at Russian brewery
- Anheuser-Busch InBev shuts fourth Russian brewery
- Mallya stays chairman at Diageo's United Spirits
- Treasury Wine Estates pulls plug on takeover talks