Coming Soon: Pepsi & Mountain Dew Flavored Yogurt?

Jul 11, 2012
J. Webster
Comments Off on Coming Soon: Pepsi & Mountain Dew Flavored Yogurt?

Well let’s hope not, Pepsi or Mountain Dew flavored yogurt would be disgusting and cancel out all the health benefits of yogurt. However, Pepsi does have something up their sleeve in forming a joint venture with yogurt maker Theo Muller Group? It could be that Pepsi wants to further expand its growing snack foods business. Unlike rival Coca-Cola, who dominates the carbonated soda market, Pepsi has two distinct businesses with drinks and food.

Pepsi (ticker PEP) has formed a joint venture with Theo Muller Group, a United Kingdom based dairy company. The joint venture will be called Muller Quaker Dairy. Pepsi will be responsible for selling Muller dairy products in North America. Pepsi’s name brand and distribution power is likely to help Muller brands like FruitUp, Corner, and Greek Corner compete in the North American yogurt market.

The Theo Muller deal follows an acquisition of Wimm Bill Dann, a large Russian dairy companies that makes yogurt, milk, juices, and soft drinks. Pepsi now owns two companies that have yogurt and dairy products. Pepsi has the ability to bring the foreign yogurt brands into North America through its Quaker and Frito Lay’s distribution groups. The yogurt market is dominated by Yoplait, Dannon, and a growing number of Greek yogurt brands.

Pepsi products are offered in 200 countries. The company also has 22 brands that generate over $1 billion each in sales. The company operates under the following segments: Pepsi, Fito-Lay, Quaker, Tropicana, and Gatorade.

Frito Lay, responsible for over $13 billion in sales, is represented by key brands including:

  • Lay’s, Doritos, Ruffles, Tostitos, Fritos, Cheetos, Rold Gold, Funyuns, Cracker Jacks, Sun Chips, Grandmas Cookies, Hickory Sticks, Munchies Snack Mix

The Quaker segment also has many category leaders with a number one position in oats, rice cakes, and granola bars. The company also has a strong presence in pancake mixes, syrup, and cereal. Some of the key brands in the Quaker segment include:

  • Quaker Oats, Quarter Instant Oatmeal, Cap’n Crunch, Quaker Life, Quisp, Quaker Grits, Aunt Jemima Pancake Mix, Aunt Jemima Syrup, Quaker Breakfast Cookies, Quaker Rice Cakes, Quaker Granola Bars, Rice-A-Roni, Pasta Roni

The other three segments are all focused on drinks. The drinks segment is the largest for the company. With companies like Kraft, Fortune Brands, News Corporation, and Marathon splitting off assets to unlock shareholder value, perhaps it is time for Pepsi to do the following.

With a split off of the Quaker and Frito Lay units together, Pepsi would spin off a high value snack foods business. The new dairy acquisition could be the sign of things to come as Pepsi Foods expands its food categories. If a spin-off occurred, it would allow Pepsi Foods to focus on international expansion and acquisitions.

Pepsi is no stranger to divestures of businesses. In 1997 it began selling off restaurants that it owned. The company owned the restaurants that now make up YUM Brands (Pizza Hut, KFC, Taco Bell). Hot ‘n Now and California Pizza Kitchen were two other restaurants owned by Pepsi. Pepsi actually owned Wilson Sporting Goods, the company that makes football, at one point.

After the break-up of the restaurants, Pepsi was able to spend money to acquire Tropicana and Quaker, to form the large food and drink conglomerate that it is today. The spin-off would be beneficial for the drink unit as well, allowing Pepsi to expand its new drink products into emerging markets and continue to create new products like Gatorade’s G Series.

And in a volatile stock market these days what with the crisis in Europe, Pepsi might be a good stock to own, with their over 3% dividend.

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