Kraft discards beverage products
The gin rummy game again. Kraft sold off two lines of beverage products Fruit2O water and Veryfine juice brands/ The buyer is US-based Sunny Delight Beverages, itself a spin off from Procter & Gamble when that company also decided to get out of the beverage business. The deal is pretty small in the large scheme of things (the two products reportedly sell about $135 million combined), but it is an illustrative move in games big companies play.
Kraft bought Verifine Products, thee originator of these brands in 2004 , but has seen scant growth in sales. It's the same old story, according to a Wall Street Journal article ("Kraft to Sell Veryfine And Fruit2O Brands As It Focuses on Growth", 10/23/07) , that Kraft management was "under pressure from activist shareholder Nelson Peltz to sell underperforming brands so Kraft can focus on its strongest brands." In other words, the product were not getting the 10% growth rate that Kraft executive must have assumed when they bought the products and hooked them into its strong sales and delivery presence.
The article also reports that Kraft is also shopping around its under-performing Post breakfast cereals. Other reports have P & G selling off its remaining food product brands, namely Folgers coffee and Pringles snacks.
For Sunny Delight, the expectations are more modest. The company actually adds to its core product line, by having more upscale "health-oriented" beverages than its core product. Fruit20 is a leading no -calorie fruit-flavored water. This follows Coca-Cola's $4 billion purchase of similar products lines by buying Glaceau, the maker of VitaminWater.
These moves are examples of the difficult of maintaining divergent product lines. Though food and beverage lines would seem to have much in common, the different rates of return and the different mind-set for making them profitable are significant. For Kraft, these products were such a minor sideline that they could not put the limited resources of marketing and sales energy away from core products. When we are talking about billions, a hundred million dollar product line becomes a neglected stepchild.
For Sunny Delight, which has current revenues of around $400 million for its powdered juice mixes and fruit beverages, the enhanced revenue will be welcome and the ability to cross-sell should be a good one. The company is owned by a private equity fund, J.W. Childs, which can afford to take a longer-term approach to the products.
10:10:34 PM 
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