Cola steps up functional drinks competition

- Last updated on GMT

Related tags: Coca-cola, Coffee

Functional drinks battle continues between Cola and Pepsi as Cola
targets Ocean Spray/ Nantucket Allserve company.

Coca-Cola Co., facing a stiff challenge from its archrival PepsiCo Inc. in the fast-growing alternative drinks market, may be preparing to acquire the Nantucket Nectars line of juice and tea products, analysts said on Tuesday, Reuters reports. Alternative drinks, or functional beverages, include bottled waters, all-natural juices, and teas laced with ginseng and other herbs. The market is estimated to be worth about $5 billion annually. Atlanta-based Coca-Cola, the world's No. 1 soft drink company, has come under pressure in recent months to respond to a flurry of deals that appear to have given Purchase, New York-based PepsiCo a leg up on the market. Last year, PepsiCo paid an estimated $370 million to scoop up a majority stake in South Beach Beverage Co. and control over the popular SoBe line of herb-spiked fruit, energy and tea drinks. PepsiCo also acquired the prized Gatorade sports drink through a recently completed $13 billion acquisition of Quaker Oats Co. "I believe Coke is taking a hard look at the possibility of acquiring Nantucket Nectars and, if a deal completes, it would be a valuable edition to the company's portfolio,"​ said John Sicher, editor of Beverage Digest, a leading industry newsletter. A deal to buy Cambridge, Massachusetts-based Nantucket Nectars would follow Coca-Cola's recent acquisitions of P.J. Bean Co., the maker of Planet Java coffee drinks, and Mad River Traders Inc., a small U.S. tea, juice and soft drink company. A Coca-Cola spokesman declined to comment on speculation that the beverage giant was in talks with Nantucket Allserve Inc. and Ocean Spray Cranberries Inc., the joint owners of Nantucket Nectars. Analysts said Nantucket Nectars, which sells about 50 types of drinks in the United States, Canada and Great Britain, could help Coca-Cola gain much-needed traction in the non-carbonated beverage market. "It would be a good fit in the sense that Coke is seen as being behind the trend on non-carbonated beverages and this would help them seem more on trend,"​ said John Faucher, analyst with J.P. Morgan. But Faucher added that integrating Nantucket Nectars into the Coca-Cola system would not marginally impact Coca-Cola's overall business. "It would send a positive message without having a major positive impact,"​ Faucher said. If Coca-Cola strikes a deal to acquire Nantucket, the deal would likely be left out of a proposed juice and snack food joint venture with consumer products giant Procter & Gamble Co. Two weeks ago, Coca-Cola announced that a review of the venture had convinced the soft drink maker that its shareholders' interests would be best served if it retained 100 percent control of its fast-growing juice brands. The original deal with P&G would have merged P&G's Pringles chips and Sunny Delight juice drink with Coca-Cola's Minute Maid juices, Hi-C, Five Alive and Fruitopia drinks into a new jointly owned $4 billion company. Many analysts had dismissed the original joint venture plan as a bad deal for Coca-Cola. Shares of Coca-Cola fell 64 cents, or 1.3 per cent, to close at $47.87 on Tuesday on the New York Stock Exchange. PepsiCo dipped 27 cents to $46.61 a share on the NYSE, while P&G dropped $1.85, or 2.4 percent, to $74.99 on the exchange.

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