PepsiCo is dusting off its three-year-old plan to buy the re-maining 90 per cent of Britvic held by its partners in the company; the brewers Bass, Allied Domecq and Whitbread.
The last time it considered such a plan – a 400m takeover – it was shelved after opposition from Allied Domecq which has a 22.5 per cent stake. The other brewers were keen to get out of the soft drinks business, which they believed to be peripheral to their own. But Allied Domecq’s opposition, rooted in concerns over the trading deals between the brewers and the supply contracts demand-ed by PepsiCo, stalled the deal.
But now there is, according to sources, fresh impetus for the deal. The new plan is said to be a result of Bass’s imminent takeover of Carlsberg-Tetley, which means that Allied Domecq will be free of the brewing interests which were the sticking point last time round. Equally, once the 200m Carlsberg-Tetley takeover is complete, Monopolies & Mergers Commission (MMC) willing, Bass could be more open to a deal that would help it cover some of its investment.
PepsiCo is also believed to be planning to consolidate its bottling arrangements into five or six bottlers worldwide – these would be majority owned – as opposed to the estimated 180 it uses in more than 200 markets where it operates. Britvic could be the chosen bottler for Europe.
The speculation comes as Coca-Cola unveils plans to attack Britvic with a 15m relaunch of Fanta (MW November 21). An orange brand that is virtually unknown in the UK despite being one of the biggest soft drinks brands in Europe.
According to one former Britvic insider: “If Pepsi was to take it (Britvic) over it would be good for the business because Pepsi would invest. At the moment, with two parents, neither Pepsi nor Bass has done that sufficiently.”
Three years ago, PepsiCo ex-pressed frustration over Britvic’s future and criticised the brewers for their alleged reluctance to invest in plant and equipment. The received wisdom was that Pepsi needed full control of the operation before it could introduce the changes it wanted.
It also watched, and learned, last year as Coke took total control of distribution by buying out its partner, Cadbury Schweppes, from their joint venture CCSB. This has had the dual effect of giving Coke more control and allowing it to put more weight behind Fanta.
Last year, Coke conducted a strategic branding review to find out why Tango had been so successful in the UK. “Coke sees the UK soft drinks market as there for the taking. Tango is at its weakest point for a very long time,” says one source.
The problem for Coke historically was CCSB and the strength of Schweppes’ brand in the market, Sunkist. Tango was able to exploit the lack of investment in Fanta and the weakness of the Sunkist brand. In the year to September 1996, Britvic spent 3.8m to advertise Tango, while CCSB spent nothing on Fanta and 1.6m on Sunkist.
Pepsi and Britvic are suffering from what Coke suffered for years. “Tango succeeded because CCSB had two orange brands to deal with and under-invested in both,” says one source close to Coke.
Britvic says it wants to stay independent, but the logic is to centralise. Coke’s takeover of CCSB has allowed it to get rid of its problem with Schweppes and Sunkist, which is now expected to be left to wither. “Sunkist is no longer a primary business builder for Coke. It all looks bleak for Sunkist,” says one industry source. Free of compromise, Coke can now concentrate on Fanta.
Britvic enjoyed much success in the late Eighties and early Nineties; helping Pepsi build market share against Coke and launching Pepsi Max. But between 1995 and 1996 Britvic’s share of the carbonated soft drinks market slipped from 17 to 16.5 per cent. This is despite the relaunch of Pepsi and 7-Up, three new fruit variants for Tango, and the launch of Mountain Dew.
In May last year, Britvic announced a 124m investment, over five years in Tango, designed to treble its sales and called for major investment from its backers.
Problems with profitability in the UK market and the new threat from Fanta are understood to have put Britvic’s European expansion plans on ice. Britvic has invested heavily in advertising for the lemon, apple and blackcurrant variants. The result so far has been a fall in sales from 4.4 per cent in 1995 to 4.3 per cent last year.
PepsiCo’s motivation for doing a deal is clear. Pepsi needs to fight Fanta on a global level and it could do that with the Tango brand. It also needs to improve its distribution to attack Coke in the UK.
At the same time, PepsiCo is spinning off its Pizza Hut and KFC chains to concentrate on the soft drinks market.
Whether Pepsi wants to take over Britvic to launch Tango globally, or to bring its own US and European orange drink, Marinda, to the UK is not known. But PepsiCo cannot sit back and let Coke have a free reign in a market that it can only half-heartedly defend because of a need for investment from its partners.
Owning Britvic would give PepsiCo total commitment to the UK soft drinks market and simplify its battle with Coke. If it doesn’t, Pepsi could end up being Tango’d by its inaction.