Pepsi Gets Juicier With Ocean Spray
Recently, PepsiCo International (PEP), the world’s leading beverage maker, has decided to manufacture and distribute a portfolio of cranberry and blueberry-based beverages through its Latin America drinks division in collaboration with Massachusetts based Ocean Spray Cranberries.
PepsiCo has formed a strategic alliance with the agricultural cooperative for cranberries and grapefruit growers, known as Ocean Spray, wherein the two companies will share marketing responsibilities for the juice products and will also pool resources on product innovation.
Formed in 1930 by three cranberry growers, Ocean Spray now has over 600 member growers and approximately 2000 employees. It owns the world's largest cranberry processing facility, the Wisconsin Rapids processing plant.
PepsiCo and Ocean Spray’s association dates back to 2006, when the two had formed a long-term strategic alliance in which Pepsi, North America was given the rights to market, bottle and distribute single-serve 15.2 ounce bottles of cranberry juice products in the U.S. and Canada under the Ocean Spray name.
In 2009, the two companies further expanded their partnership to embrace the production and distribution rights of Pepsico for five additional beverage flavors; 100% Apple, 100% Orange, Ruby Red Grapefruit, Pineapple Peach Mango and Strawberry Kiwi, from February 2010.
Ocean Spray's management revealed that PepsiCo and Ocean Spray will discuss the strategy of their new launch and how will they will promote it., Further, management revealed Ocean Spray’s policy of promoting products through free samples while taking local market expert opinions instead of going for a big media buy in the beginning.
Recently, PepsiCo has been making its investors confident by it policy of expanding aggressively into the emerging markets of Latin America, Eastern Europe and Asia. In April 2011, PepsiCo entered into a multi-year agreement with Fast food giant Burger King. This acquisition facilitated Pepsi to be the exclusive soft drink supplier to more than 1,000 restaurants throughout the company’s Latin America and Caribbean region. In addition, PepsiCo became the largest soft drink provider for Burger King’s restaurants.
Earlier this month, the U.S. drinks major revealed its plans to purchase local cookie maker Marilan Alimentos in order to strengthen its foothold in Brazil. The potential deal follows the acquisition of yet another Brazilian cookie company, Grupo Mabel, in November, 2011.
As per the analysts, the acquisition will give PepsiCo the second position in the Brazilian biscuit market, which is the second largest cookie and cracker producing market in the world. Further, the company also acquired Dilexis, a traditional manufacturer of cookies and crackers in Argentina.
These new investments of nearly $1 billion in the snacks division would give the company a massive new market in Latin America, and will bring it close to its competitor Kraft Foods Inc. (NYSE:KFT - News), the world’s leading manufacturer of biscuits, chocolate candy, gum and nuts.
Management believes that the increasing political stability in Latin America supported the company’s performance going forward. The recent alliance with Ocean Spray is a will help PepsiCo move a step closer to be a strong player in the Latin American market.
Currently, we prefer to be Neutral on Pepsi’s stock. Furthermore, Pepsi holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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