The sale, which includes Tropicana orange juice brands, Naked and other juice brands in North America, brings PepsiCo approximately $3.3bn that the CPG giant plans to use to strengthen its balance sheet and make “organic investments in the business,” while simultaneously freeing the company to concentrate on its zero-calorie beverages, SodaStream and portfolio of healthier snacks, PepsiCo chairman and CEO Ramon Laguarta said in a statement.
PepsiCo will retain a non-controlling 39% interest in the newly formed joint venture, exclusive US distribution rights to the brands through its direct store delivery for small-format and foodservice channels, while PAI will become the majority shareholder of the transferred business.
The deal’s pre-tax price tag is the same as what PepsiCo paid Seagram Co. for Tropicana in 1998, and is only slightly more than the roughly $3bn in net revenues that the juice business brought PepsiCo in 2020, which represented a small fraction of the company’s approximate $70bn in total revenue.
While Tropicana is the top refrigerated orange juice brand in the US, fruit juice and drinks consumption have fallen significantly since PepsiCo acquired Tropicana.
According to the Beverage Marketing Corp., fruit juice and drink consumption fell 19% to 2.8bn gallons in 2020 from 3.4bn in 2011, and PepsiCo reported a 36% drop in sales to 436m gallons.
This drop likely is due in part to recent efforts to reduce consumption of sugar, which is often high in juice beverages, and underscores the uncertainty of the category in consumers’ evolving health and wellness initiatives.
“The news of Tropicana and Naked reflects the uncertain role of fruit juice in the consumers’ routine long term and the ongoing concern about sugar, particularly in North America where Tropicana is largest,” said Howard Telford, head of soft drinks at Euromonitor International.
He added: “While the category in the US enjoyed a boost in off-trade sales in 2020, with consumers seeking more vitamin C for immune support, the long-term trend has been one of decline. The role of fruit juice in future consumers’ diets will look significantly different in terms of portion size, functional need and packaged versus unpackaged formats.”
Juice has ‘great growth potential’
Despite these downward trends, PAI managing partner Frédéric Stévenin said in a statement that he sees “great growth potential” for the portfolio of beverages, which he said the private equity firm plans to realize through product innovation, expansion into adjacent categories and enhanced scale in branded juice drinks and other chilled categories.
Earlier this year, the chief marketing officer and vice president of the Juice Plus brand portfolio at PepsiCo Beverages North America told FoodNavigator-USA in episode Soup-To-Nuts podcast that the company was exploring how to position juice as a permissive indulgence with the launch earlier this year of two Naked Indulgent Protein SKUs and four new flavors of Tropicana Premium Drinks that recalled vacations or lounging poolside in the summer.
Stévenin’s opinion further is reinforced by other high-profile acquisitions earlier in the pandemic, including the repurchase of orange and grapefruit juice brand Uncle Matt’s Organic by the original founder from Dean Food in May 2020.
Matt McLean, who established Uncle Matt’s Organic more than 20 years and sold to Dean Foods in 2017 before buying the brand back, sees strong growth potential based on the category’s health benefits, and potential to innovate beyond traditional juice – including into better-for-you desserts and treats where the sugar content may be more acceptable.
New areas for innovation are coming into focus
PepsiCo’s sale and declaration that the sale will allow it to focus on its zero-calorie beverage and water business, also reflects a general consensus forming across category players more broadly as illustrated in other recent sales, Telford notes.
He explained: “Pepsi selling Tropicana and other juice brands is another major sale, or divestment, in the drinks industry in a relatively short space of time, following Coca-Cola’s SKU rationalization in 2020—discontinuing Odwalla juice and Zico—and the sale of Nestle Waters North American brands to private equity.
“This deal reflects the desire of the industry to focus and innovate around a smaller core of categories and brands, including water, energy drinks, coffee and the staple carbonated soft drinks.”