John Baumgartner and Bonnie Herzog, both senior analysts at Wells Fargo Securities, are the lead authors of a note published today discussing talk – first fomented by Reuters from late 2012 but never addressed by management from either company, of a possible tie-up.
WhiteWave has a 14% share of a ‘non dairy’ beverage category worth $9bn at retail level in the US (it includes soy, almond, coconut and rice milks) that has enjoyed 9% CAGR over the past five years.
“Given Coke’s new ‘partnership model’ focus, we think Coke could establish a distributor relationship with WhiteWave (and potentially take an equity stake) and provide it access to faster growth beverage adjacencies,” the analysts write.
Green Mountain and Monster: Coke’s new ‘partnership model’
As examples of what a ‘partnership model’ might mean, they cite Coke’s recent investments in coffee – $2.25bn paid for a 16% equity stake in Green Mountain this February, and the deal announced in August whereby the soft drinks giant pays $2.15bn for a 16.7% stake in Monster.
“As WhiteWave maintains a warehouse delivery model, and with 85% of sales in North America, we would not be surprised to witness a similar strategic relationship take root between Coke and WhiteWave,” Baumgartner and Herzog write.
“Such a structure could leverage Coke’s powerful global distribution network and give it access to a rapidly growing and attractive beverage category that is highly complementary to its current strategic priorities,” they add.
Why couldn’t Coke simply build its own position in plant-based beverages from scratch?
Well, Baumgartner and Herzog point out that General Mills, Hain Celestial and even Coke itself have all tried yet failed to steal share from WhiteWave’s Silk brand (which offers soy milk, almond milk and coconut milk and has a 9.2% global share in non-dairy alternative drinks) over the past decade.
Coke diversifies portfolio as soft drinks struggle
Referencing Coke’s recently launched Fairlife milk brand, Baumgartner and Herzog say a tie-up with WhiteWave would bring the Atlanta-based company several strategic benefits.
Firstly, access to a premium brand portfolio including WhiteWave’s US market-leading organic milk brand Horizon Organic, which generates $600m in annual sales, which the analysts say would complement FairLife and other plant-based beverages.
Secondly, the analysts say Coke will have access to products that will offset lost carbonated soft drink (CSD) volumes in markets such as Mexico, where the recently introduced tax on sugar-sweetened drinks has hit sales.
Finally, Wells Fargo’s analysts believe that by acquiring an equity stake now, Coke could put itself in pole position to acquire WhiteWave further down the line.
What’s in it for WhiteWave Foods?
So that’s the case for Coke. But what’s in it for WhiteWave?
Access to Coca-Cola’s world class global distribution network – especially in ‘attractive’ Latin American (LATAM) markets where Coca-Cola FEMSA has access to almost 3m points of sale and circa. 50% of LATAM consumers – and with that the ability to target global growth.
‘If not Coke, then PepsiCo or Grupo Lala?’ This is the question Wells Fargo’s analysts ask, citing PepsiCo CEO Indra Nooyi’s interest in dairy type beverages and admission that protein isn’t the company’s strongest suit.
If not Coke, then PepsiCo?
“We believe WhiteWave’s organic milk and plant-based products would satisfy PepsiCo’s desire for growth in protein and WhiteWave’s strong European soy-based yogurt business (20% of Alpro EU division’s sales) and the high potential US yogurt opportunity could expand on the Muller initiative,” Baumgartner and Herzog write.
PepsiCo may also provide an entrance to Brazil and Russia, where its dairy operations are currently very strong,” they add.
As for Grupo Lala. Well, as Mexico’s largest dairy company with $3.4bn in annual sales, it provides local chilled distribution for Nestle and is seeking growth in new categories and within LATAM.
“The one key shortfall is Lala’s lack of deep distribution in Brazil, a highly important market for plant-based food and beverage consumption,” the analysts conclude.