25 Aug 2021 PepsiCo’s sale of Tropicana: what it means for the future of the juice category

On 3 August 2021, PepsiCo announced the sale of its Tropicana and Naked fruit juice businesses – a giant change that’s explored further here by Euromonitor.

They have been bought by the French private equity firm PAI Partners, while PepsiCo retains a non-controlling stake in a new joint venture for the brands.

According to Euromonitor International’s Soft Drinks system, Tropicana was the second largest brand in global juice in 2020 in terms of volume, after Minute Maid (Coca-Cola), and the largest brand in global 100% juice due primarily to leadership in North America (particularly in the orange juice category).

The sale of Tropicana is perhaps the most high-profile change in a busy year of discontinuation and divestment among the biggest soft drink producers in North America.

High-profile casualties of Coca-Cola’s global SKU rationalisation programme in 2020 included Odwalla juice, Zico coconut water, stevia-sweetened Coca-Cola Life, Tab diet cola and – most recently – the short-lived Coca-Cola Energy launch in the US.

Nestlé Waters also sold its North American regional packaged water and water delivery businesses to private equity in March 2021.

But an established household brand leaving the portfolio of the “big two” soft drinks companies is an uncommon event. The sale of PepsiCo’s juice business reflects several short-term and longer-term challenges for the company and the wider fruit juice category in the region.

North American families don’t consume fruit juice in the same way they used to

Per capita consumption of 100% juice and nectars in the US fell by 36% over 2006-2020. This is part of a long-term, perhaps generational shift in how individuals and families consume fruit juice as part of their routine.

The multi-serve carton or jug of orange juice no longer occupies a regular place on the morning breakfast table, while various formats of coffee (hot, cold or pod-based), flavoured water, tea and even energy drinks have gained share as a morning beverage alternative.

A generational change in morning beverage preferences is a fact not lost on PepsiCo, with product launches like Kickstart in 2013 and, most recently, Mountain Dew Rise in 2021 – both energy drinks targeting the morning occasion.

PepsiCo also distributes Starbucks ready-to-drink coffee brands in its US bottling system and Kevita water kefir/kombucha products.

Over the last decade, price has remained a constraining factor for the 100% juice category, particularly orange juice, where crop disease and poor weather in the main producer regions of Florida and Brazil have contributed to volatile commodity prices for oranges and orange juice concentrate.

This has been reflected in several spikes in the retail price of major brands. Yet the biggest problem is changing consumer health preferences.

Legacy brands within US juice – particularly orange juice – have lost their innate health halo as consumers become more sensitive to the quantity of sugar in their beverages, despite the micronutrients continued in premium juice.

Attempts by the industry to draw a distinction between “naturally occurring” sugar and added sugar through marketing efforts have failed to resolve this perception among consumers.

National health bodies in the US have recommended limiting juice consumption, with the American Academy of Pediatrics presently recommending no more than 8oz of 100% juice for children 7-14, and lowering the threshold to no more than 4oz for children ages 1-3 years.

Certainly the benefits of 100% fruit juice, notably the high quantities of vitamin C in oranges, have been in strong demand among US consumers seeking to support healthy immune system function during the past year through fruits, natural juices and multivitamin supplements.

This contributed to a small, temporary increase in consumption in 2020, but not enough to reverse the multi-decade decline in fruit juice consumption.

Efforts by mass-market brands over the last decade to introduce artificially sweetened alternatives – notably Trop50, a Tropicana extension in 2009 with 50% less sugar through the inclusion of non-nutritive zero-calorie sweeteners – never gained widespread appeal.

Less interest in national brands among super-premium juice consumers

While the fruit juice category has been impacted by the diminished role of mass-market orange juice, there is simultaneously a growing preference at the most premium end of the shelf for small independent brands, foodservice juice preparation or home preparation of juices and smoothies.

This trend is a major obstacle for Naked Juice, a super-premium fruit juice and smoothie producer first acquired by PepsiCo in 2007.

Naked Juice’s range of super-premium juices and fruit smoothies has been one of the largest and most successful over the last decade, although growth has slowed in recent years as minimally processed (either HPP or “raw” local juice options) have gained shelf presence in high-end supermarkets and the café/foodservice channel.

As with the discontinued Odwalla brand from rival Coca-Cola, Naked brands risk being caught in the middle: generally too expensive for the mass-market consumer who is increasingly attuned to sugar in juice and other beverages, while too processed for consumers seeking independent, highly perishable local options and less trusting of the quality of national brands.

Juice as an ingredient across categories and formats

While fruit flavours and fruit juice in packaged beverages still play an important role in the US beverage industry, the format and portion of juice products is starting to look very different.

Fruit juice will continue to be a flavouring agent across almost all categories, increasingly in seltzer water (as an alternative to artificial flavour oils), as a source of flavour and sweetness in fermented beverages like water kefir, in lemonade and other refreshment brands, as well as fruit mixers and even non-alcoholic spirits or RTD alcohol alternatives.

In the functional space, highly concentrated fruit juice shots in small formats with distinct functional claims have also been a successful segment over the past two years.

51-100ml pack sizes or tonics have been an area of creative innovation and offer the advantage of retailer-/consumer-friendly portability and suitability in terms of sustaining the immune support, gut health and energy-boosting ingredients and allied supplements that consumers increasingly demand from their drinks.

Fruit tonic and shot producers in North America have found success in matching key, emerging ingredients to significant functional need states (like immunity, energy and gut health), or more ambiguous benefit states like vitality or general wellness.

Vitamins C and D, minerals such as zinc as well as anti-inflammatory botanicals such as turmeric and ginger are most commonly associated with supporting immune system health in drinks such as juices and bottled waters.

Source: Euromonitor International, authored by Howard Telford – Head of Soft Drinks Research