Natural Foods Merchandiser

Izze deal fizzes with opportunity

The September sale of Izze Beverage Co. to PepsiCo—for a reported $75 million—took few by surprise, after months of rumors, but nonetheless left many in the naturals community worried that the quirky sparkling juice manufacturer's values might be corrupted by the soft drink behemoth. Similar concerns arose when Pepsi bought the SoBe tea and energy drinks company in 2000 and rival Coca-Cola bought Odwalla juices in 2001.

In a news release announcing the deal, Pepsi quickly acted to quell those fears. Dawn Hudson, Pepsi-Cola North America president and chief executive officer, said Izze's distribution system would remain unchanged, and that PepsiCo would drive consumer awareness of the brand through increased marketing efforts. She also said Izze would operate as an independent unit and remain in its Boulder, Colo., headquarters.

"We'll give Izze the freedom and autonomy to preserve its identity while we develop the brand and help it grow," Hudson said.

But assurances might be better taken from peers within the naturals industry, so it helps that the deal was the work of an under-the-radar "green" investment group, Greenmont Capital Partners, which, like Izze, is based in Boulder. Greenmont made its first investment in Izze in late 2004. Izze was founded in 2002. "Where it's going to impact the most is the culture of the company itself," said David Link, managing director at Greenmont. "I think the brand and keeping what's in the product will hold up over time. It's the reason [Izze] has been so successful. [Pepsi officials] see all the trends around why that's happening."

Izze sparkling juices contain no refined sugars or other artificial ingredients, and come in flavors such as pear and blueberry.

Greenmont has $20 million in private equity, much of it from natural products industry leaders. The venture fund invests in companies with sales of $2 million or more that operate under the lifestyles of health and sustainability umbrella. Among Greenmont's general partners are industry veterans S.M. "Hass" Hassan, Barney Feinblum, Bryan Meehan, Paul Repetto and Mark Retzloff.

"Different board members played different roles," in the Izze sale, Link said. "The person that was most involved was Hass Hassan. His role was helping with transition issues. There's always issues around how people are compensated and how they're impacted. … We would be more in tune with that than the typical venture fund."

Link added that there are great benefits in selling to a much larger company, beyond wider distribution. "You join up with Pepsi, and all of a sudden you've got access to a whole range of consumers that you wouldn't otherwise."

It's even easier to see why a giant like Pepsi would want in on Izze's audience. Izze drinkers are "young, healthy, active and incredibly loyal," said Hudson.

And in a market where soda sales have been stagnant or dwindling, Pepsi's acquisition of Izze affirms its soda alternatives strategy. Along with other "health" beverages, both Izze and SoBe have reported buoyant sales as initiatives such as healthier school vending machines have driven interest in their products. Pepsi, along with Coca-Cola and Cadbury Schweppes, committed this spring to removing sugary sodas from school vending machines by 2010.

Izze's distribution in naturals stores—which have tended to shun Pepsi and other major soda company offerings—was believed to have strongly appealed to Pepsi, sources said. One market analyst noted Pepsi was far ahead of Coca-Cola in developing its nonsoda offerings. "Pepsi's beaten Coke at that game," Matthew Reilly, of Chicago-based analyst Morningstar, told Denver's Rocky Mountain News. "Coke basically held onto the old view of the world too long."

Natural Foods Merchandiser volume XXVII/number 11/p. 1

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