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Beverage wars now fought over much more than cola

Beverage wars now fought over much more than cola

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Battles in the "cola wars" are breaking out all over the place, as archrivals Coca-Cola Co. and PepsiCo Inc. duel over all sorts of beverages, trying to scoop up alternatives such as iced tea and sports drinks as consumers flock to new drinks.

Coca-Cola, the No. 1 soft drink maker, is now mulling the possibility of buying Quaker Oats Co., maker of cereal and the prized Gatorade sports drink line, which No. 2 player PepsiCo reportedly backed away from just weeks ago.

"If Pepsi hadn't done anything, Coke wouldn't have done anything," ING Barings analyst Emanuel Goldman said about the plan to pursue Quaker. "Not at this point in time."

Both companies, along with smaller competitors, are vying to gain ground by making a variety of drinks as consumers flock to stores and vending machines for more than just soda.

"I think that what we're seeing now is Coke and Pepsi realizing that the American consumer's taste (is) becoming more promiscuous, and that if they are the big beverage companies, they need to play aggressively in every category that now exists and every category that may exist in the future," said John Sicher, editor of industry newsletter Beverage Digest.

Both Coke and Pepsi are already leaders in the juice business, with Minute Maid and Tropicana, respectively. But these days, carbonated soft drinks and juice are not enough.

Late last month, Pepsi said it will buy a majority stake in South Beach Beverage Co., which makes SoBe brand herb-spiked fruit, energy and tea drinks, for about $370 million.

Atlanta-based Coca-Cola spent months trying to work out its own deal for Norwalk, Conn.-based SoBe, but said it rejected a deal for purely financial reasons.

CADBURY NOW ALSO A PLAYER

Also in October, Cadbury Schweppes Plc completed its purchase of the Snapple Beverage Group from Triarc Cos Inc., expanding its presence in the U.S. market, where it already markets Dr. Pepper and 7-Up soft drinks. The $910 million cash deal gave London-based Cadbury the Snapple juice drinks and iced tea line, along with brands such as Mistic, Stewart's, Royal Crown and Diet Rite.

"I would anticipate Cadbury is looking for additional acquisitions," Sicher said.

Analysts have said other drink makers, such as AriZona Beverage Co., Nantucket Nectars and Ocean Spray Cranberries Inc., could be scooped up by one of the major soft drink makers. AriZona, the biggest independent maker of functional beverages, makes tea drinks, Nantucket Nectars makes juices and teas, and Ocean Spray dominates the cranberry juice market.

"I think Coke and Pepsi will take close looks at virtually every kind of nonalcoholic beverage that they think has growth potential," Sicher said. "Each company is determined to meet as broad a consumer demand for liquid consumption as they possibly can."

Gatorade, the dominant player in the sports drink market, is clearly seen as one of the biggest prizes.

WHAT WOULD HAPPEN TO POWERADE IF COKE BUYS QUAKER?

If Coke does buy Quaker, it would likely have to find a buyer for its Powerade sports drink line, given possible antitrust concerns. But who would want to compete with Gatorade?

According to Beverage Digest, Gatorade controlled 73 percent of the sports drink segment in 1999, with Powerade in second place with 15 percent and Pepsi's All-Sport third, with 6 percent. In the take-home channel, Gatorade was even more of a giant, with an 83.5 percent share, according to Sicher.

While Gatorade is clearly the leader, Coke has shown strong worldwide backing for Powerade, at events such as the Olympics and the World Cup, as Sanford C. Bernstein's William Pecoriello said in a research note on Monday.

Who would want to buy Powerade? It's too early to tell.

"Anybody and everybody if the price were right," Goldman said. "They'd have to make the price right."

"It's a nice brand...but it's not Gatorade." Goldman did not speculate on what a fair price for Powerade would be.

Goldman said Pepsi would not scoop Powerade up if Coke is successful in its bid for Quaker.

"Losing Gatorade would be trauma enough," he said. "Buying Powerade would be selling your soul."


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