Pepsico's bet on V Water may be a deal that's too early -stage
- April 30, 2008
||buyer announcement of company acquisition in April 2008
||V Water (UK), niche domestic flavoured water business
||Pepsico Inc (USA), multinational food group
||two founders of V Water
||expansion of portfolio beyond CSDs and into healthier concepts
||need for strong partner to get to next level
||V Waterâs market segmentation strategy is based on âconsumer moodsâ
This little deal illustrates how audacious Pepsicoâs acquisitions have become, in developed markets. The groupâs $500 mln per annum warchest, for âtuck inâ purchases, seems to be burning a hole in its pocket. This is a speculative deal, but with a big and risky investment later on for Pepsico. Thatâs because of the major expense of educating the consumer to buy the V Water concept, to take the brand beyond its existing niche and into the mainstream.
This deal follows a pattern set by Pepsicoâs acquisition of Izze Beverage in Q3 2006, and Coca-Colaâs purchase of Fuze Beverage in Q1 2007. In each case, the target company was set up by âtwo people in a basementâ, and was barely a few yearsâ old, but had an all natural product and an interesting marketing story. It seems like a good idea for a big corporate to nurture such businesses almost from birth, but in reality they risk being smothered to death. There are two routes to this fate. Either the brand is just too small to be focused on by the buyerâs huge sales machine, or a major marketing spend, behind the brand, fails to retain the youthful essence of the brand.
V Water was established in 2005 by two people, and is distributed mostly in high -end stores. The fact that itâs stocked by Harvey Nicholls, in Londonâs exclusive Knightsbridge area, underlines just how niche and ultra -premium it must be. A business like that should really stay independent for many more years, climb the learning and growth curves, then be sold to a major once itâs proven that its sustainable, has mainstream appeal and is at the stage where it needs greater commercialization. Pepsicoâs acquisition of Naked Drinks in Q4 2006, a company with a 20 year history and over $150 mln in sales, meets these criteria and is the type of deal that Pepsico should be doing.
V Water is 6 single âserving bottle SKUs, all -natural spring water fortified with vitamins, minerals and herbal extracts. The marketing angle is indeed very novel, with product taglines like âmake my skin glowâ or âbeat the Monday bluesâ. Is seems that Pepsico is making a bet that this type of positioning is where the future lies. Itâs likely therefore to spend a lot of money trying to educate the consumer to buy according to their moods, and to trust that V Water brand will deliver to those moods. Thatâs a hugely ambitious target, and one that risks a spiral of investment.