In the world of Wall Street deals, it was so
slight an acquisition it didn’t even merit a
mention in any of the daily news sections I read:
PepsiCo paid what insiders said was $75 million
– pocket change – for privately-held-Izze Beverage.
What Pepsi got for its outlay is a healthieralternative
soda that couldn’t have been doing
much more than a million cases in annual volume
– some in Starbucks, some in gourmet stores
and supermarkets, some in schools. So obscure
is Izze in the bigger realm of soft drinks that a
Pepsi acquaintance of mine confided that, aside
from the odd mention in trade journals he reads,
it wasn’t a brand that was even on his radar.
So imagine his surprise when, mentioning
at breakfast that Pepsi was about to announce
the acquisition, his teenage daughter excitedly
revealed that she was a closet fan of Izze. Apparently,
now that it was entering the Pepsi orbit
she could afford to admit it!
But that’s how these brands are. For those
of us who tend to focus on big-volume brands
launching in-your-face media assaults and grand
merchandising displays at retail, brands like Izze
and Switch and GuS and Fizzy Lizzy really are
beneath notice. Still, they have loyal followings
– even, it seems, within Pepsi households – and
since many of these loyalists are young, these
brands can’t be entirely written off without a
hard look at the future.
In Izze’s case, the brand commands a premium
price, has won a soft spot in moms’ hearts
and is packed in classy glass bottles that provide
a distinctive shelf presence next to the ocean of
CSD line extensions packed in metal and plastic.
It’s also a nifty on-premise play for delis,
pizza parlors and corporate cafeterias looking to
strike an upscale note or two. Like Frappuccino
and Ethos Water, also in the Pepsi portfolio, it
has a very visible presence in the aura-conferring
Starbucks cold box. Not least, if Coca-Cola were
to decide to counter Pepsi’s move, it’s hard to
see what other brand in this segment has quite
the presence of Izze, small as awareness is even
for Izze.
Let’s not kid ourselves, though. Historically,
this segment – what I think of as fizzy juices
– has been quite problematic. I got worked up
when Crystal Geyser’s Juice Squeeze turned up
in my local Starbucks in the 1990, earning the
honor of becoming the first beverage sold in
Starbucks that my kids actually enjoyed. With
72 percent juice and 28 percent sparkling spring
water, it seemed a parent’s dream. (We hadn’t
learned to be scared of juice yet.) It didn’t go
anywhere, though: it wasn’t “refreshing” enough
for mainstream tastes, my more seasoned friends
in the business explained to me, and there were
punishing economics that made it hard to make
a buck.
Now, driven in part by the backlash against
conventional CSDs, these drinks may finally
be about to break out (though the economics
haven’t gotten any friendlier). So count Pepsi
as showing a subtle intelligence in picking out
the choicest alt-soda brand in the batch, recognizing
that – despite the absence of any significant
entry barrier – neither its soft-drink nor its
Tropicana units are likely to be able to KO it
convincingly – and being willing to pay a “strategic”
price (read: one day’s sales in Minnesota)
to get it. Also smartly, I think, Pepsi is resisting
the urge to fold it into its headquarters development
operation and its bottler network. Instead,
taking a cue from its experience with SoBe – an
acquisition that went inert fairly quickly once
sku-pinching marketers and bottlers went to
work – it’s said it will let the brand breathe. We’ll
see, if the brand gathers momentum, whether
Pepsi maintains that approach. So far, though,
it’s looking like a good way to proceed with what
may prove to be a very smart buy.
Longtime beverage-watcher Gerry Khermouch
is executive editor of Beverage Business
Insights, a twice-weekly e-newsletter
covering the nonalcoholic beverage sector.