The merger between Heinz and Kraft Foods isnt the first to impact the soft drinks and bottled water categories, nor will it be the last

The merger between Heinz and Kraft Foods isn't the first to impact the soft drinks and bottled water categories, nor will it be the last

Following the announcement that Kraft Foods and Heinz are to merge, Ray Rowlands looks at some other actual - and would-be - company unions and asks, who might be next?

Amongst the headline-grabbing news last month was the revelation that Kraft Foods and Heinz are to combine forces as The Kraft Heinz Co. The move will create the third-largest food and beverage company in North America.

Formed in 2012 as a spin off from Kraft Foods Inc, Kraft Foods focuses on the US market. Kraft Foods Inc, meanwhile, took on a new identity as Mondelez International. Although primarily involved in the global snacks business, 16% of the latter’s net revenues come from beverages, with Tang its main money spinner in the category. Following the split, Mondelez took Tang, probably the world’s best-known fruit powder drink, with it. However, Kraft Foods retained a raft of other soft drinks including Country Time, Kool Aid, Mio and the US licence for Capri-Sun fruit drink. Heinz has no real involvement in the US beverage business, but it did make an interesting overseas purchase at the end of 2008 when it bought Australian juice producer Golden Circle.

Despite the loss of Tang, Kraft Foods remains a major force in the US soft drinks market. Thanks primarily to Capri-Sun, it is the number two player in the still drinks market, behind Coca-Cola. It is also the biggest supplier of fruit powder drinks and, thanks to the innovative 2011 launch of Mio liquid water enhancer, it controls around a third of the country’s cordial market.

Whilst the creation of Kraft Heinz Co will provide cost-cutting scale economies and raise retail bargaining power, the deal does not seem likely to have much impact on the US soft drinks market. The new company’s beverage activities are not expected to become earth-shatteringly different.

However, it does raise the question, who will be next major soft drinks players to follow the merger trail?

Already, in recent years, we have seen the 2012 absorption of Coca-Cola Polar's activities by Embotelladora Andina, thereby creating one of Latin America's largest bottlers, with operations stretching across Argentina, Brazil, Chile and Paraguay. Then, in late-2013, Gerber Emig and Refresco, both significant suppliers of third party beverages as well as their own brands, joined forces to form Refresco Gerber. The merger created a leading European bottler of juice and other soft drinks, with production facilities in nine European markets, annual turnover of EUR2bn and sales of 6bn litres. The obvious success of this partnership has not gone unnoticed and Refresco Gerber is now mooted to be a takeover target.

In the same year we almost saw the coming-together of AG Barr, owner of the Irn Bru and Tizer CSD brands with larger rival UK soft drinks company Britvic, best known for its Robinson’s cordial range and Fruit Shoot still drink, though also a PepsiCo bottler. That would have created a business entity with a combined annual turnover in excess of GBP1bn and a powerful rival to the likes of Coca-Cola with a sizeable 15% to 20% volume share of the UK's soft drinks market. At the time, it was forecast that the merger would result in synergy savings of GBP40m a year. As for the new soft drink concepts that might have been brought to the table, alas we will never know. In the end, Britvic decided to retain a position of splendid isolation, embarking on a cost-cutting programme, which saw subsequent profits rising but with sales still struggling.

In 2010, Suntory Holdings, owner of Orangina and now Lucozade and Ribena, walked away from a potential merger with rival Japanese company Kirin, which produces numerous soft drinks in Japan and owns the National Foods beverage business in Australia. If it had gone ahead, and taking into account the extensive alcohol drinks portfolios of both parties, the ambitious deal would have created a business bigger than even that of Coca-Cola in Japan. Negotiations failed because the two potential partners could not agree on an acceptable merger ratio. But, with the domestic market shrinking, Japanese drink companies have looked to find profit and growth in new directions. Suntory has already hinted at acquisitions in developing economies and had shown an interest in Danone’s bottled water business (including Evian and Volvic).

But, could the would-be Japanese partners settle their differences and finally join forces or will Kirin seek out a new partner, such as Asahi, as part of its key growth strategy? Only time will tell.

Various other possible partnerships include Danone and Nestle, to gain synergies in the bottled water market, or Danone and PepsiCo, a recurring rumour since 2007, when merger talks between the two ran aground.

To my mind, the one outstanding lost opportunity in the mergers game ((I’ve said it before and I’ll say it again) is a union of PepsiCo and Red Bull. What a combination that would make. Red Bull is the number one energy drink worldwide. It is estimated to outsell Monster, now in bed with Coca-Cola, on the global playing field by more than 2:1 and is in a close tie position in the important US market. Unlike Monster, Red Bull has no international allegiances, so there are no obvious hindrances in this direction. Meanwhile Red Bull would gain from PepsiCo’s distribution muscle, global status and complementary soft drinks portfolio. Unfortunately ownership lies with Dietrich Mateschitz, said to be worth in excess of US$10bn, and the Yoovidhya family, one of the richest families in Thailand.

Until they tire of the wealth that Red Bull currently accrues for them, there is, unfortunately, little hope of any actual tie up here, but what a missed opportunity!