Are sugar concerns the real reason Pepsico strips Tropicana and Naked?

In the West Governments have gone to war against sugar due to concerns about obesity and related life style diseases like diabetes. In the UK, according to the food standards agency, ‘the amount of sugar in food’ is currently the number one consumer concern, ahead of food waste, animal welfare and surprisingly (for me) the use of additives and pesticides.

Photo Omid Armin

But sugar is not the number one concern everywhere. In China, for example, sugar levels in food are not top of consumers’ minds. Instead production dates, shelf life and storage conditions, namely fundamental food quality issues, are much bigger issues.

At first glance, no surprise that last week Pepsico announced it was selling its Tropicana and Naked brands – in North America only. But note carefully, keeping a 39% stake.

Delve further, in North America last year sales of Tropicana actually grew as consumers shifted to in-home consumption, especially breakfast. And in Britain the brand grew too thanks to lower calorie and lower sugar offerings like Lean and Trop 50.

So why the divestment? I suspect the real reason is more to do with profitability. 

Commodity prices are rising; shipping bulky liquids long distances is expensive; and orange juice is a price sensitive category. Let’s not forget retailer brands are strong too. These facts were implicitly recognised in the deal’s low multiple (enterprise value $4.5bn, revenue $3bn). 

The new private equity owner, FAI, also has shown it can work well behemoths like Nestlé in ice cream.  

The divestment is one less distraction as PepsiCo searches for better returns in other categories. 

Personally I still see a lot of upside in fruit. Sugary sweets and cakes is one thing, but natural sugars in fruits, not to mention vitamins and fibre?

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