Coke Tightens Grip on North American Bottled Water Market

From: THE AGRIBUSINESS EXAMINER May 2, 2005, Issue #403
Monitoring Corporate Agribusiness From a Public Interest Perspective
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COKE TIGHTENS GRIP ON BOTTLED WATER MARKET BY BUYING OUT DANONE'S 49% STAKE IN NORTH AMERICAN JOINT WATER VENTURE

CHAD TERHUNE, WALL STREET JOURNAL:

Coca-Cola Co. has agreed to buy out Groupe Danone SA's 49% stake in a bottled-water joint venture in North America and also to invest more in marketing Danone's Evian mineral water over the next five years.

The companies didn't immediately disclose terms of the deal. Coke is expected to pay less than $100 million to acquire Danone's 49% stake and to take full ownership of five spring-water bottling plants. In 2002, Atlanta-based Coke paid the French food and beverage company about $125 million for its 51% stake in the joint venture that markets and distributes Danone's Dannon brand and other spring waters in North America.

Coke and Danone have a separate agreement under which Coke markets Danone's premium Evian brand. Under the new agreement, Coke has agreed to boost marketing spending for Evian by about 20% over the next five years. Danone will also contribute some money toward that effort.

Analysts say the joint venture for Dannon, Sparkletts and other spring-water brands has failed to turn a profit since its inception as retail water prices have continued to plummet amid intense competition. Coke and Danone have been discussing changes to their joint venture for the past several months.

"We have a strong partnership with Danone, and both companies believe in the potential of this category," said Don Knauss, president of Coke's North American operations. "We believe that this new agreement will enable us to be faster and more efficient, and further strengthen that partnership."

Nestle SA is the overall water leader in the U.S. with a collection of strong regional brands such as Poland Spring and Arrowhead.

PepsiCo Inc., Purchase, New York, has the top U.S. bottled-water brand in Aquafina, which had a 14.5% market share, according to 2004 retail data compiled by Beverage Digest. Coke's Dasani brand, a purified tap water, was No. 2 with a 9.5% share.

April 22, 2005