Case Interview Questions #00009: You are consulting for the manager of a division of Naked Juice Company, a wholly owned subsidiary of food and beverage giant PepsiCo (NYSE: PEP). Her division produces fruit juices in three forms, all marketed under the same “Naked Juice” brand name: chilled (found in the milk section of the supermarket, usually), juice boxes, and frozen concentrate.
This division has sales of $600 million per year. The entire company has sales of over $20 billion. The chilled segment represents $120 million in sales per year. While juice boxes and frozen concentrate are profitable, chilled juices are only breaking even in good quarters and losing money in bad quarters. The division manager has just received a proposal from upper management to sell the entire chilled juices business, but she is unsure whether this is the right decision. What would you advise her to do? Should Naked Juice sell the chilled juices business?
Additional Information: (to be given to you only if asked)
1. Market Share: Chilled beverages is a $5 billion dollar industry nationwide. There are two large players that have 40% and 25% of the market share, respectively. Your client’s market share, 12%, makes her third in the industry.
2. Competition: The best available information indicates that the two market leaders are profitable. Also, the two market leaders are able to fund more advertising and more promotion, trade and couponing than your client.
3. Products: The two market leaders produce pure orange juice and blends that are based on citrus juices. Your client’s product uses more elaborate blends of juices, usually with a base of pear or peach juice (95% of the inputs) and flavored with cranberries, bananas, mangoes, etc. (the other 5% of the inputs). Pear and peach juice are about the same price as orange juice, but the other flavorings cost about twice as much.
4. Customers: The market for chilled juices is essentially mothers with school age children. This is a highly price sensitive market that loves coupons, promotions, etc.
5. Price: Brand name is important in this market, as in juice boxes and frozen concentrate, as mothers tend to prefer highly reliable products for their children. However, the brand premium must be in line with other branded products. Therefore, all branded juices tend to sell in the same price range.
6. Company: The client has one plant in California that produces all of the product: chilled, juice boxes and frozen. It would be difficult to find another use for the plant without a major conversion.
Basically, there are three options for your client Naked Juice: