Coke thinks Glaceau is the real thing
Bottle of Smart Water
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KAI RYSSDAL: Technically it's not just water that Coke's getting for it's $4.2 billion. The soda maker announced today it's buying Glaceau, maker of the multiflavored VitaminWater line. Consumers may or may not be able to beef up their health. But Coke clearly thinks Glaceau can fortify its bottom line. Marketplace's Steve Tripoli tells us why.
STEVE TRIPOLI: First of all why did we make this company worth $4.2 billion? Does any visitor to VitaminWater's website really believe they've entered what the company calls "The Center for Responsible Hydration?"
Dr. David Ludwig studies beverages and nutrition at Children's Hospital in Boston. He says VitaminWater's better than traditional soft drinks though it's still got sugar. But it's still no substitute for a healthy diet.
DAVID LUDWIG: Many people are susceptible to some of the, I believe, excessive health claims relating to all beverages. But especially these vitamin waters.
But Coke isn't in the health foods business here. They're hoping to bulk up on profits. Tom Pirko works for BevMark, an industry consultancy that has Coke as a customer. He says this part of the beverage world is where the action is.
TOM PIRKO: What used to be a carbonated soft drink business has now exploded so that it is a business of flavored water, fortified water, of energy drinks, of sports drinks. So everyone is drinking everything. It's now a free-for-all.
And Coke was lagging Pepsi in the noncarbonated part of that free-for-all. Which helps explain why Coke spent billions for VitaminWater's parent company Glaceau.
PIRKO: Because it's a synergistic buy for them. It means more to them. It has a higher value to them because they need these brands. They have to buy these brands.
It's kind of like when the New York Yankees paid a bundle for Alex Rodriguez — partly to get him and partly to keep him away from the Boston Red Sox. Coke needed Glaceau - and they needed to keep Glaceau off Pepsi's already strong noncarbonated team.
I'm Steve Tripoli for Marketplace.