By Natalie DeCoste
PepsiCo has decided to sell off controlling stake of its juice brands, including Tropicana orange juice and Naked.
The soda company announced that it would sell a controlling stake of the juice brands to French private equity firm PAI Partners. PepsiCo will receive pretax proceeds of $3.3 billion and retain a 39% stake in the new joint venture valued at roughly $4.5 billion.
“This joint venture with PAI enables us to realize significant upfront value, whilst providing the focus and resources necessary to drive additional long-term growth for these beloved brands. In addition, it will free us to concentrate on our current portfolio of diverse offerings, including growing our portfolio of healthier snacks, zero-calorie beverages, and products like SodaStream which are focused on being better for people and the planet,” said PepsiCo Chairman and CEO Ramon Laguarta.
PAI is a leading private equity firm with strong experience in the food and beverage space. The company is invested in Froneri, the world’s #2 ice cream manufacturer, and Ecotone, a leader in healthy and sustainable food.
Once the deal goes through, PAI will be the majority shareholder of the transferred business, with PepsiCo retaining exclusive U.S. distribution rights to the portfolio of brands in its chilled Direct Store Delivery for small-format and foodservice channels.
“We are delighted to bring these storied beverage brands into the PAI portfolio through another partnership with a leading global food and beverage company. We believe there is great growth potential to be realized through investments in product innovation, expansion into adjacent categories, and enhanced scale in branded juice drinks and other chilled categories,” said Frédéric Stévenin, a Managing Partner at PAI.
The two companies expect to close the deal in late 2021 or early 2022. PepsiCo expects to primarily use the proceeds from the sale of these assets to strengthen its balance sheet and make organic investments in the business.
The deal comes following years of shifting consumer demand away from fruit juices as consumers reduce their sugar consumption. PepsiCo saw a slight resurgence last year when the company announced that demand for its orange juice rose during the pandemic as more people made breakfast at home. Still, the overall trend for juice sales continued to decline at the company and across the industry.
Consumption of fruit juices and fruit drinks fell 19%, down to 2.8 billion gallons in 2020 from 3.4 billion in 2011, according to Beverage Marketing Corp. Over the same period, PepsiCo’s own sales of those products fell 36% to 436 million gallons.
“In part, the news of Tropicana and Naked reflects the uncertain role of fruit juice in the consumer’s routine long term and the ongoing concern about sugar, particularly in North America where Tropicana is largest. While the category in the U.S. enjoyed a boost in off-trade sales in 2020, with consumers seeking more vitamin C for immune support, the long-term trend has been one of decline,” said Howard Telford, head of soft drinks at Euromonitor International.
The shift in consumer demand for fruit juice has also impacted PepsiCo’s rival Coca-Cola, which has spent the last year and a half trimming their portfolios to respond to the pandemic, specifically the shutdown of its smoothie label Odwalla.
