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VIEWPOINT; HOW PEPSICO AND QUAKER COULD MAKE A SPLASH TOGETHER

By Published on .

Can two troubled companies find happiness together?

Traditional wisdom dictates that two companies with severe problems can't solve them by falling into each other's arms, but I submit that in the case of PepsiCo and Quaker Oats Co. this unromantic scenario might not be true.

There's no denying that both companies have encountered hard times. PepsiCo is finding it rough going trying to keep up with Coca-Cola Co. overseas, and Quaker stumbled badly by overpaying for Snapple beverages and then pouring more money down the drain in an unsuccessful attempt to boost sales.

In an article on the troubles of PepsiCo, Business Week says that the investment bankers think the company's future growth "is likely to come from a major food or beverage company acquisition."

How about a company that markets both food and beverages? How about Quaker Oats?

True, the investment community is fed up with Quaker at the moment. Crain's Chicago Business, a sister publication of Advertising Age, has been following the Snapple debacle closely, and in a lead story the other week picked up far and wide, CCB reported: "Despite a hastily arranged, $20 million program personally overseen by Quaker Oats Co. Chairman and CEO William D. Smithburg to give away Snapple beverages, the brand's sales and market share dried up during the crucial summer sales period."

CCB went on to say that Mr. Smithburg is now forced to put into effect a combination of scaling back distribution of Snapple to both coasts, taking a big restructuring charge or "entertaining offers to sell all or part of Quaker."

In spite of its bet-the-ranch play with Snapple, Quaker still has tremendous strengths. Its acquisition of Gatorade, of course, has proved to be a grand slam home run, both in this country and abroad, and Gatorade could definitely help Pepsi-Cola's problems overseas. Having a powerful brand like Gatorade to distribute would give Pepsi bottlers a lot more clout against Coke. (In August, Pepsi lost a key Venezuelan bottler to Coke; if Pepsi had Gatorade in its stable the bottler would have thought twice about defecting.)

In this country, Pepsi could use Snapple to compete against Coca-Cola's Fruitopia. Pepsi already markets Lipton prepared teas-which are now outselling the Snapple teas-so Pepsi could either discontinue its royalty deal with Unilever and concentrate on Snapple iced teas, drop the Snapple iced tea line and keep plugging Lipton or market both.

Quaker already has sold off pet food, pork and beans and a number of other units to pay off debt, but the company still has cereals and pancake mixes and syrup (which Pepsi probably wouldn't want to keep), plus rice cakes. The rice cakes are a surprising success for Quaker, and they'd fit right in with PepsiCo's Frito-Lay store-to-door distribution system.

One of the many reasons Quaker has had such a hard time making Snapple work is that the drinks are handled by fiercely independent bottlers. But PepsiCo, at least initially, could leave Snapple with its own bottlers on the East and West Coasts, where it's strongest, and switch over to the Pepsi bottlers in the Midwest and other regions.

Is this a match made in marketing heaven?

Gatorade could fix Pepsi's biggest problem-its weakness overseas. Snapple could give Pepsi another line of drinks in the U.S. to grab shelf space away from Coke. It could sell off all the warehouse deliver stuff to help pay for the acquisition.

The rice cakes are an added bonus.

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