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Coke Unveils Juice Sodas Amid Report of Pepsi-7-Up Merger

January 23, 1986

NEW YORK (AP) _ With PepsiCo Inc. reported ready to buy Seven-Up Co., industry leader Coca- Cola Co. stepped up its attack against both companies Thursday by unveiling lemon-lime and orange sodas that contain fruit juice.

Coke’s new sodas are meant to compete with a ″juice-added″ soda already sold by PepsiCo, called Slice, and Seven-Up’s dominant share of the traditional lemon-line soda category.

Coca-Cola’s new entries and PepsiCo’s reported desire to acquire Seven-Up underscore ″both firms’ optimism for (the) non-cola segment″ of the nation’s $26 billion soft-drink industry, Jesse Meyers, publisher of the trade journal Beverage Digest, wrote earlier this week.

PepsiCo’s decision to acquire Seven-Up, which has been rumored for several days, was expected to be announced shortly, the New York Times reported Thursday. The newspaper, quoting unidentified sources, said the value of the proposed transaction was about $400 million.

Keith Anderson, a spokesman at PepsiCo’s headquarters in Purchase, N.Y., declined comment on the story, saying the company does not respond to speculation.

Atlanta-based Coca-Cola currently is the leading soft-drink concern with about 39 percent of the total market, followed by PepsiCo at 28 percent and Seven-Up with 7 percent, according to Meyers. One percentage point equals about $100 million in sales.

Hence, if PepsiCo buys Seven-Up, it would not only allow PepsiCo to challenge Coca-Cola’s leadership, it also would give Coca-Cola and PepsiCo a combined 74 percent share of the total market.

As a result, the purported merger is likely to be reviewed by federal antitrust authorities, the Times said.

Coca-Cola, meanwhile, said at a news conference in New York that beginning next month it will sell ″juice-added″ lemon-lime and orange flavors of its new Minute Maid soda, together with diet versions of those drinks.

″Our objective is to effectively use our company’s second-most important trademark, Minute Maid, to play a leading role in the emerging juice-added segment of the soft-drink market,″ said Brian G. Dyson, president of Coca- Cola USA.

In addition, Coke said it would step up marketing for its Sprite and diet Sprite lemon-line sodas to compete more effectively against Seven-Up. The Sprite campaign will feature ″aggressive new youth-oriented advertising,″ it said.

Coca-Cola also sells two other citrus-flavored soft drinks, Fresca and Mello Yello.

Coke and PepsiCo have essentially divided the so-called citrus soda market into two categories - those with real juice added, such as Slice and the Minute Maid sodas, and those without, such as Seven-Up and Sprite.

Dyson estimated that all of the various citrus-related soft drinks now account for about 20 percent of the U.S. market, and that those drinks could eventually reach a 25 percent share.

Jerry Stevens, editor and publisher of another trade journal, Beverage World, said the ″juice-added″ segment alone could capture 10 percent of the total soda market within three to four years. ″The public is becoming more health and nutrition-conscious,″ he said.

When asked what effect a Pepsi-Seven-Up combination would have on Coca Cola, Dyson replied: ″We have our strategy. We know that other competitors in the soft-drink business have theirs. We are very pleased with what we have been for the past five years and we intend to keep on doing it just as much or more than ever.″

Philip Morris bought Seven-Up in 1978 for about $520 million, but since then Seven-Up has struggled to maintain profitability. As a result, it had been rumored for several months that Philip Morris would attempt to unload the soft-drink company.

Emanuel Goldman, beverage analyst for Montgomery Securities in San Francisco, has said he expects Seven-Up to post a pre-tax loss of $5 million to $10 million on revenue of $720 million for 1985. That would compare with operating income of $5.3 million on revenue of $734 million in 1984, he said.

Analysts also have suggested that PepsiCo could produce a significant improvement in Seven-Up’s earnings by combining the company with its strong distribution system and bottler support.

Separately, PepsiCo said it opened a bottling plant in the southern Chinese city of Canton that will produce soft drinks solely for the Chinese market.

The Canton plant represents PepsiCo’s second joint-venture in China. In 1982 PepsiCo established the Shenzhen City Happiness Soft Drinks Factory, which has produced more than 150 million cans and bottles of soft drinks, mostly for export.

Coca-Cola has opened four bottling franchises in China since 1981, in Peking, Canton, Xiamen and Zhuhai.

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