- PepsiCo is selling its juice brands in North America and Europe — including Tropicana and Naked — to private-equity firm PAI Partners for $3.3 billion in pre-tax proceeds. In the deal, PepsiCo will retain a 39% noncontrolling stake in the brands, as well as exclusive distribution rights for chilled direct store delivery to small format and foodservice channels.
- The juice brands delivered approximately $3 billion in net revenue last year, with operating profit margins below the company's overall benchmark. PepsiCo plans to use the proceeds from the sale of these assets primarily to strengthen its balance sheet and investments in its business. The deal is expected to close in late 2021 or early 2022.
- This is the latest big divestment in the food business. Even prior to the pandemic, companies were concentrating on selling some of their slower growth brands so they could concentrate on building their core businesses.
Like all food companies, PepsiCo is thinking of what will work best for future sales, profits and margins. Even though Tropicana's brand name is what many consumers associate with orange juice, it's out of the area where PepsiCo is focusing more of its efforts.
"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," PepsiCo Chairman and CEO Ramon Laguarta said in the release announcing the divestment. "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."
PepsiCo has owned the Tropicana brand since 1998, when the company bought it for $3.3 billion from the former Seagram Co. At the time, the acquisition was seen as a chance for the New York-based soda and snack giant to compete head-to-head on another front with its rival Coca-Cola, which owns Minute Maid.
However, fruit juice sales have been dwindling over the past several years because of the beverage's high natural sugar content. In 2017, U.S consumers drank the lowest amount of fruit juice per capita, or 5.2 gallons, since the U.S. Department of Agriculture started tracking the number in 1970.
The pandemic has given juice sales a jolt — especially orange juice — as consumers look for foods with natural immunity benefits. Tropicana Pure Premium posted a 15.9% increase in dollar sales in the year since the pandemic took hold, according to IRI statistics reported by Dairy Foods. According to SPINS data reported earlier this year and appearing in Food Navigator, refrigerated juices and functional beverage sales saw a 12.2% increase during the pandemic.
Despite these increases, juice has not been as profitable for PepsiCo, and it's not where the company has been concentrating its efforts over the past year. The company is targeting the plant-based segment, entering a partnership with Beyond Meat to develop more plant-based snacks. It also launched Neon Zebra and Unmuddled, two lines of cocktail mixers. The bubly and SodaStream owner got more into functional sparkling water, launching its Soulboost brand, and it added the teen-targeted Frutly hydrating brand.
PAI Partners, which will now operate the juice business, is based in Europe, which is where most of its holdings are as well. The firm also owns Froneri, the joint venture company to which Nestlé sold its ice cream business in 2019.
While this is a big brand divestiture, food companies have increasingly not been afraid to sell off some of their signature brands and units in the name of optimizing their operations. Nestlé was one of the first to make this sort of change, with the Froneri spinoff and the 2018 sale of its U.S. candy business, but the trend has kept going. Earlier this year, Kraft Heinz sold its Planters nut brand to Hormel.
Soft drink rival Coca-Cola has also been eyeing the juice market with a critical eye. In 2018, Coca-Cola pledged to cut brands that hadn't grown in three years, and several juice brands fell into that category. Last year, it discontinued its Odwalla brand. The company was also considering ending its Zico coconut water brand, but instead sold it to a private-equity firm owned by Zico’s creator.
In comments emailed to Food Dive, Howard Telford, head of soft drinks at Euromonitor International, said this most recent divestment news reflects the uncertain status of fruit juice in the long term.
"The role of fruit juice in future consumers' diets will look significantly different in terms of portion size, functional need and packaged versus unpackaged formats," he wrote.