COMMENT: Coca-Cola Co. lights a Fuze
This week, The Coca-Cola Co. snapped up niche US firm Fuze Beverage. The acquisition signals a realisation from Coca-Cola Co. that it needs to bolster its presence outside the carbonates market in the US. Dean Best reports.
The Coca-Cola Co. doesn't often pounce to make acquisitions in the US. However, the Atlanta-based giant's move to buy niche firm Fuze Beverage could help stave off anxiety that its drinks stable is still wedded to what is, at best, a stagnant US carbonates market.
Yesterday's (1 February) acquisition of Fuze, which produces a range of energy and vitamin-enhanced drinks, demonstrates that Coke feels it needs to boost its presence in the faster-growing parts of the US soft drinks market.
Arch-rival PepsiCo has been more active in diversifying its business in the US; last year the company snapped up Naked Juice and Izze Beverage, two firms enjoying ever more popularity as US consumers demand healthier alternatives to carbonates.
Sure, Coca-Cola Co. has created brands like Enviga, but, to date, it had seemed PepsiCo was the company more aware of the need to spend some money on buying brands that, while small, already had developed a loyal following.
What's more, Coca-Cola Co. bottlers had become so concerned at the lack of action from the company on the non-carbonated front, that they had begun distributing brands from other drinks companies.
Coca-Cola Bottling Co. Consolidated had set up BYB Inc., a stand-alone business producing non-carbonated products, which has enjoyed growing success with its fledgling RTD latte brand Cinnabon.
Coca-Cola Enterprises (CCE), meanwhile, handles the AriZona Iced Tea range, a portfolio produced by Hornell Brewing. CCE will also start distributing the Fuze stable when the acquisition is complete, a move that the bottler's CEO John Brock believes will "significantly enhance" its offering.
Mark Swartzberg, an analyst at US investment bank Stifel Nicolaus, said that, in announcing the Fuze acquisition, Coca-Cola Co. was keen to show its willingness to listen to its bottlers.
"If you look at the press release, Coca-Cola Co. went out of its way to talk about the bottlers, as all the indications are that bottlers have started to go to alternative sources for products," he told just-drinks. "The idea looks to be that Coca-Cola Co. wants to include the bottlers in all that they do."
The Fuze deal looks a strategically important one from Coca-Cola Co.'s point of view but surprisingly they seemed unwilling to talk up the acquisition yesterday. Coca-Cola North America president Sandy Douglas would only say that the Fuze brands are a "strong complement" to the company's portfolio.
Swartzberg, however, said: "If properly managed, Coke can accelerate the performance of the portfolio. Consumers are looking for drinks that are healthy and functional and they are variety-seeking - large brands no longer have the power that they once had."
Nevertheless, Swartzberg added that Coca-Cola Co. had had "false starts" with non-carbonates acquisitions in the past. "If you look at Mad River Tea, which Coca-Cola Co. bought in 2001, that certainly hasn't been a home run," he ventured.
Coca-Cola Co. has said that Fuze will operate as a stand-alone unit but said it is "too early" to discuss whether the firm's current management team will stay on board.
Nevertheless, analysts, bottlers and industry watchers will be keeping a close eye on whether Fuze can indeed spark Coca-Cola Co.'s performance in the US.
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