Pepsi gets Naked

Posted Nov 28th 2006 6:13PM by Sarah Gilbert
Filed under: Deals, Competitive Strategy, Coca-Cola (KO), PepsiCo (PEP)

PepsiCo, Inc. (NYSE:PEP) and The Coca-Cola Company (NYSE:KO), always one-upping one another, right? Yes... but this one-upsmanship was a lot longer in coming. Back in 2001, Coke bought Odwalla Juice, immediately positioning it in the highest-price (and, yes, most authentically healthy) segment of the non-alcoholic beverage market.

This month, Pepsi has finally countered that by purchasing Naked Juice Co, a part of the company's overall shift towards healthier options and, certainly, a move to raise the average price of their products -- or, as John Faucher from JP Morgan Securities puts it, "adding high growth, non-carb brands." While terms of the deal weren't announced, analysts say it was likely around $450 million.

The way I see it, this acquisition helps move Pepsi into the coffee shop, alongside its recent acquisition of Izze sodas. While Pepsi's cola and other sugary, fizzy drinks aren't exactly a has-been, Americans are spending more of their casual dining dollar in coffee shops, and less in fast food restaurants (not to mention the considerable health benefits of juice over soda). Pepsi is wise to position its beverages so that coffee shop owners won't mind putting them alongside their Guatemalan coffees -- and Naked Juice and Izze sodas are naturals there.

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