The purchase of AdeS marks Coca-Cola Cos entry into soy-based beverages

The purchase of AdeS marks Coca-Cola Co's entry into soy-based beverages

This month, Ray Rowlands runs the rule over The Coca-Cola Co and Coc-Cola FEMSA's joint purchase of the AdeS soy-based brand and asks, is it really a viable asset or actually a potential liability?

The Coca-Cola Co is on the expansion trail again as it reinforces the non-carbonated side of its empire outside of its North American homeland. Not content with the 40% stake it bought in the Nigerian Chi juice drinks company in February (along with a string of earlier acquisitions), it announced the joint-purchase last week of the AdeS brand and assets from Unilever. This time, it has brought in Coca-Cola FEMSA, Coca-Cola's largest bottler in Latin America, as its acquisition partner. The joint approach makes good sense as the AdeS business is based in the same region. Teaming up like this also means on-going costs will be shared, of course.

AdeS soy-based beverages - what have Coca-Cola Co, Coca-Cola FEMSA bought for US$575m? - Click here for the facts

AdeS is one of the world's top producers of soy-based beverages and is the segment's leading player in Latin America. Initially developed by an Argentinian lawyer, the AdeS brand itself is something of a hybrid product, with much of the range being a mix of soy and fruit juice. It comes in a carton-packaged range of flavours – from apple to passionfruit – and has built up a strong following since its initial launch back in 1988. The name AdeS is reported to be a derivative of the word soja (soy), although to me it loses something in the translation.

The US$575m transaction marks Coca-Cola's soy drinks entry, although it has been involved with dairy products for a while. Nine years ago, Australasian bottle Coca-Cola Amatil test-marketed a flavoured milk range in Western Australia, through its Goulburn Valley juice unit. Then, in 2012, the company's Jugos del Valle joint juice venture, again with Coca-Cola FEMSA, acquired Mexican dairy firm Santa Clara Mercantil de Pachuca. This was followed by a joint operation with Arca Continental in 2014 to buy a majority share in Ecuadorean dairy product group Holding Tonicorp. Closer to home, Coca-Cola launched Fairlife Ultra-Filtered Milk in the US, also in 2014.

AdeS products can be found in eight Latin American markets, although surprisingly not in Venezuela, a market that seems to offer a good sized consumer audience but where soy drinks have not yet established a foothold. Where AdeS has established a presence, it has tended to do well over time. In Argentina, where it was founded in 1988 and remains one of its three key markets, AdeS was the first low juice-content (under 25% juice) still drink to offer a vitamin-enhanced formula. This helped the brand to build up a faithful consumer following. Nevertheless, the brand has been losing ground in the country in recent years, as maturity has set in, investment has tailed off and flavoured water has come more into vogue.

Brazil is by far AdeS biggest market. Introduced here in 1997, the brand became one of the country's biggest-selling juice drinks. Unfortunately, it suffered a major setback in 2013, after a batch of AdeS was found to have been contaminated by a toxic cleaning agent. This led to a product recall, a temporary sales ban and a subsequent sales loss valued at up to US$95 m. Among consumers, memories are long and the brand has still not fully recovered.

Mexico also features as one of AdeS' main markets. The brand was launched there in 1998, although its recent performance has been disappointing. Indeed, AdeS is proving not to be at its best generally either due to its maturity, more innovative competition from the likes of coconut water, or possibly a consumer aversion to soy. Moreover, the name of the product may also not sound too appealing to potential new consumers. Interestingly, Coca-Cola already has a water brand called Ades in Indonesia, which could also cause future confusion in an export context.

Considering all this, it could be suggested that the drinks giant hasn't thought its purchase decision through in sufficient detail. Certainly, the announced takeover had very little positive effect on Coca-Cola's share price so, obviously, shareholders do not view it as a major stepping stone. Then again, if anyone has the muscle to counter such negative forces, I guess its Coca-Cola.

AdeS was acquired by Unilever as part of its purchase of Best Foods in 2000. It was the arrival of Unilever that helped fuel the brand's regional expansion. Its recent offloading, though, represents the latest in a list of divestments that includes the Bertolli, Ragu and Slim Fast brands, as Unilever shifts its focus away from food and beverage products towards its personal care businesses (skin cleansing, deodorants etc).

In reality, the AdeS deal is fairly small-scale, with reported sales of just 320m litres last year. A much more interesting proposition would be if Unilever decides to sell off its Lipton iced tea brand, for whom annual volumes equate to almost 4bn litres worldwide. Now, that would be a prize that Coca-Cola would surely bend over backwards to obtain, and would see its share price soar.

Admittedly, it would cause all manner of ructions around the globe, not least because Coca-Cola has tended to side with Nestle in the iced tea wars whilst PepsiCo partners Lipton. However, if Unilever is serious about concentrating solely on its high-margin personal care products and Lipton comes up for grabs, then the fireworks really will flare.

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