The Big Gulp

P&G, Coke make a new home for orphan brands. Will the experiment work?

It’ll be at least a year before marketing staffers at Procter & Gamble and Coca-Cola feel the impact of the joint venture the companies announced in February. The brands involved in the merger will stick to existing marketing plans for 12 to 18 months while senior management sets its framework to serve chips and juice together.

But the venture could ultimately redefine the way packaged goods companies nurture orphan brands. At the very least, it’s redefining the term “orphan.”

Procter & Gamble, Cincinnati, and Coca-Cola, Atlanta, pooled $4.2 billion in juice and snack brands to form a global operation with sales expected to hit $5 billion by 2003. The new company will have 40 brands, but the bulk of business will come from five: Coke’s Fruitopia and the Hi-C and Five-Alive brands from its Minute Maid juice division, and P&G’s Pringles and Sunny Delight.

All five are sizeable players — from $1.5 billion Pringles to $14 million Five Alive — but have been stagnant in growth. The as-yet unnamed new company will leverage P&G’s research expertise and Coke’s global distribution — especially direct-store delivery (DSD) in the U.S. — to open new avenues for Pringles and Sunny Delight and help Coke move beyond carbonated soft drinks. Coke exec Don Short is ceo.

Once the venture gets regulatory approval (which is expected by mid-June), Short and senior managers will set plans to merge the brands. The new company will have a very small staff, probably 20 to 25 employees, with four or five hired from outside and the balance split between current P&G and Coke workers. Staffers who work directly on the brands are expected to accompany them. The shift should be complete by August 2002. No agency reviews are anticipated before then, a P&G spokesperson says.

The equal partnership pools brands that are not core to either company’s portfolio, despite their size. Houston-based Minute Maid has always been considered a bit of an orphan at Coke’s Atlanta headquarters, and food brands are less prestigious at P&G than category giants like Tide and Pampers.

Sixty percent of current sales are in the U.S., 40 percent from overseas; Short expects both to grow. Seventy percent of revenues come from juice, 30 percent from snacks. Worldwide, snacks are a $50 billion segment; juice is $34 billion. Marketing spending likely will follow sales growth, a Coke spokesperson says.

The first opportunity is wider distribution for Pringles, which now sells in only 10 percent of Coke’s distribution points. Riding on Coke trucks could improve Pringles’ availability in c-stores, Mom and Pops, and vending machines. That improves reach to Pringles’ core audience of kids and teens and could boost away-from-home consumption, which accounts for 35 percent of salty-snack munching.

But skeptics point out that even Coke’s own brands, Hi-C and Five Alive, are distributed via warehouse rather than DSD. Still, a Pringles can is similar in shape to a Coke bottle — and targets the same consumer — so it may be an easy shift to DSD.

Pringles also will get a wider variety of sizes and prices, including premium-priced, single-serve cans heavy on convenience. The new company hopes to double the brand’s c-store and g-store distribution and triple vending while working on new flavors and brand extensions.

Juice drinks will get more extensive distribution, too, courtesy of Coke’s 16 million outlets globally. “This allows us to market the right juice products in the right markets to satisfy consumers at every stage in their lives,” including nutritionally fortified juices in developing markets, Short says.

Out of the Shadows

In the long term, the brands will get more marketing attention as bigger fish in a smaller pond. The new company can be an incubator for creativity, better poised to take risks than either parent. Short foresees “a dynamic mindset [and] an entrepreneurial corporate culture,” according to his statement accompanying the announcement. That could mean new opportunities for promotion shops.

P&G and Coke have tested joint promotions in recent years. Regional promos for Coke and Pringles have boosted Pringles sales as much as 40 percent, Short says.

None of the brands has a promotion agency of record, and few have used promotion aggressively. Hi-C has had the highest-profile campaigns, including a tie-in with MaMaMedia.com and in-school sampling for the 1999 regional launch of Hi-C Blast that reached 1.6 million kids in the Southwest. The MaMaMedia partnership, launched February 2000, centers on a Power Up Club with sweeps and games appearing on the kid-friendly Web site and 100 million Hi-C boxes. CDM, Newport Beach, CA, handles.

P&G’s Sunny Delight sponsors a 3v3 Soccer Shootout tour in conjunction with Major League Soccer, and Pringles is one of a handful of P&G brands sponsoring teen site Bolt.com as part of a two-year deal that ends September 2002. It also is just finishing a two-year sponsorship deal at concert venues owned by New York City-based SFX, Inc., with sampling and events like drumming contests.

Another long-term opportunity is new products, especially healthful beverages. Consumers buy 35 billion cases of ready-to-drink health and nutrition beverages a year — but only 800 million of them from Coke. At the same time, Coke’s core carbonated beverages sales have been soft enough to warrant a marketing boost of $300 million to $500 million this year. (The money has no connection to the new company, Coke’s spokesperson says.) Coke needs to widen its product base, and is counting on P&G’s nutrition research to foster new products.

Challenges

The biggest competitor, of course, is PepsiCo. With Frito-Lay, Tropicana, and Gatorade, PepsiCo bumps up against P&G/Coke in all categories. Frito-Lay dominates snack shelves, especially up and down the street, and has far more variety — which is crucial in the snacks segment. Also, Frito-Lay route drivers are independent contractors with a personal stake in the business. “They’re zealots for Frito-Lay. They’re cowboys,” says an agency source who has ridden the trucks while working on Frito. Coke, whose trucks are owned and staffed by bottlers, may be hard-pressed to match that enthusiasm, especially if it asks drivers to stock secondary displays outside the soft drink aisle.

Deep Six

Add the fact that Coke and P&G have stronger reputations as elitists than as team players. “There could be a lot of finger-pointing,” says Jim Holbrook, president of St. Louis-based Zipatoni, which does work for Coke. “But if it’s done right, it could instill a [creative] culture that could seep back into the parent companies.”

Coke’s 10-year-old alliance with Nestlé S.A. could serve as a model. In January, the two spun off what had been a joint venture and renamed it Beverage Partners Worldwide (from Coca-Cola and Nestlé Refreshments) to expand to new geographic markets and segments beyond ready-to-drink coffee and tea. The co-op handles 250 million cases a year in 24 countries.

Coke and Nestlé keep equity, but independent management gives Beverage Partners “the innovative spirit, speed, and culture of a new start-up company,” says Nestlé executive vp and Beverage Partners co-chair Carlos Represas in a statement. “We expect that combination to stimulate rapid growth.”

Time will tell how the orphans thrive under foster care. Much will depend on how entrepreneurial Short and his team can be — and how high a priority they consider marketing.