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Case D-22: Naked® Juice: Strategy for Growth

Naked® Juice was started in 1983 in Santa Monica, California. Home-squeezed and blended juices and
smoothies were peddled from towel to towel on the beaches of Southern California until they caught on with
small grocery stores near the beaches, then all over Los Angeles.

Today, Naked Juice is a national brand based in Azusa, California, offering all-natural, 100 percent juices and
juice smoothies with no added sugar or preservatives. There's “a pound of fruit in every 15.2-ounce bottle!”
More than 6 million bottles of Naked Juice are shipped every month, and the brand is reportedly the fastest-
growing super premium juice brand, growing at a rate of 63.9 percent annually. The top sellers are Green
Machine, Protein Zone, and Mighty Mango. Health magazine named Mighty Mango the best smoothie,
Progressive Grocer picked Strawberry Kiwi Kick “Best New Product” for 2006, and Gourmet Retailer
selected Naked Juice as the “Editor's Choice” for June 2006. Naked Juice is sold through supermarkets, club
stores, health food stores, and neighborhood markets across the country. Suggested retail prices for a 15.2-
ounce bottle range from $2.59 for Just Juice products up to $3.19 for the smoothies with special ingredients
such as acai.

PRODUCT FAMILIES

Naked Juice organizes its product offerings into “families” or categories. Currently, there are six families:
Superfood Family (five different flavors of 100 percent juice smoothies), Just Juice Family (four pure juice
flavors), Well Being Family (100 percent juice smoothies with immune boosters such as vitamin C,
potassium, and echinacea), Protein Family (soy and whey protein-laced smoothies), Naked Energy Family
(100 percent fruit juice smoothies with all-natural energy such as green tea extract, guarana, and B vitamins),
and Antioxidant Family (six flavors with boosts of vitamins A, C, E, and selium).

BEVERAGE INDUSTRY

The beverage industry is a complex and competitive environment with a wide variety of categories. In the
nonalcoholic sector, the major segments are carbonated beverages (colas, lemon-lime, root beer, and other
flavors), hot beverages (e.g., coffee, tea), and what are referred to as “functional” beverages—energy, sports,
health, and nutritional drinks. Functional beverage sales were $17.9 billion in 2015 with an annual growth
rate of 6 percent.

Naked Juice competes in the energy, health, and nutritional drinks segment. Key competitors include Hansen
Natural, Odwalla (owned by Coca-Cola), and Pom Wonderful. Many of these beverages, as well as Naked,
are located in the produce department.

SWALLOWED BY PEPSI

Pepsi “got Naked®” in early 2007 with the acquisition of the company to add to its beverage portfolio that
also includes Aquafina, Gatorade, SoBe, Lipton, iced Starbucks RTDs (ready to drink), Propel, and
Tropicana. PepsiCo also bought Izze Beverage Co. for $75 million, while Coca-Cola agreed to buy juice and
tea maker FUZE Beverage LLC. The reasons for this buying binge of small, successful noncarbonated
beverage companies is simple—the cola market is at best in the late stage of the maturity product life cycle,
more likely in decline. In the first half of 2006, Pepsi-Cola's U.S. volume fell 7.2 percent while Coca-Cola
Classic's fell 4.9 percent in grocery, drug, and mass merchandisers. The diet versions were also down 4.7
percent and 4.9 percent, respectively. According to Tom Pirko, president of BevMark, Coke and Pepsi

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executives are torn between conflicting demands of supporting declining soda brands and driving growth of
noncarbonated coffee and energy drinks that younger consumers crave. The largest consumer group for cola
products is not younger consumers, but 35- to 54-year-old householders. Midwesterners and those with less
education index are higher on cola consumption.

Further evidence of the upheaval in the beverages market is apparent in media spending. For the first time,
media spending for noncarbonated beverages and energy drinks—at $953 million in 2005, up 6.7 percent
—topped the $898 million spent on traditional carbonated soft drinks.

JUICES PROSPER

“Consumption of juice may be up because of health benefits and people's interest in whole, natural, or fresh
food,” according to Gaff Rampersaud, a registered dietitian at the University of Florida. “One hundred
percent juice and other minimally processed healthy foods are gaining popularity. One benefit is the nutrient
density, which means the amount of nutrients per calorie. Citrus juices and other popular juices have higher
amounts of nutrients per calorie.” There is also growing evidence that citrus juice consumption is beneficial
in reducing the risk of oral cancer, colorectal cancer, adenomas, urinary stones, and Alzheimer's disease.
Pomegranate juice is getting a lot of attention for its health benefits and has shown up in a number of new
juice offerings as is acai, a rain forest berry from Brazil with a very high antioxidant content.

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Consumers also continue to demand more upscale, natural, and organic products. While the juice category
grows, the fastest-growing part of that category is juice smoothies, with a 52.4 percent one-year increase.

ISSUES

Major soft drink players have all agreed to cut back on sales of high-sugar beverages to public schools by the
2008 school year, which will further dampen carbonated sales.

The growing importance of the Hispanic market that prefers fruit-flavored beverages is part of the trend away
from colas. With the explosion of variety in the beverage industry you can get your caffeine jolt with a
Starbuck's latte, a Red Bull energy drink, or the green tea and guarana boosts of a Naked Juice Black &
Blueberry Rush.

Questions

1. What strategy(ies) has Naked Juice taken to reach its current market position?

2. Consider PepsiCo's strategy(ies) in its beverage business. What are the implications for Naked Juice in
this portfolio?

3. What key marketing metrics do you think PepsiCo should use to evaluate the performance of Naked
Juice? Would these measures be different for its traditional carbonated soft drinks, and if so, how?

Naked® Juice: This case was prepared by Professor Linda Rochford, University of Minnesota, Duluth, based
on the following sources: Anjali Cordeiro, “Beverage Deal Gets Fuel from Desire for Less Fizz,” The Wall
Street Journal, February 14, 2007; Paul Ziobro, “Health Drinks Reward Backers,” The Wall Street Journal,
January 4, 2007, p. B10A; “Naked Juice Company,” Hoovers.com; Naked Juice website,
www.nakedjuice.com, and promotional materials; Hansen's Natural website, www.hansens.com; Kate

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MacArthur, “Pepsi Primes Brand Overhauls: Exclusive: $50M Effort from BBDO Looks to Restore the Tone
and Spirit of the 1970s Work,” AA 77, no. 42, p. 1; Bureau of Labor Statistics, Who's Buying Alcoholic and
Nonalcoholic Beverages (Ithaca, NY: New Strategist Publications, 2005); Odwalla Products website,
www.odwalla.com; “A Healthy Glow: Consumers Soak Up the Health Benefits of Juice and Juice Drinks,”
Beverage Industry, January 12, 2007; “Naked Juice Expands DSD, Taps Team of R&D Experts,” Beverage
Industry, August 8, 2006; “2006 State of the Industry,” Beverage Industry, July 22, 2006; “Soda Industry to
Stop Selling Non-Diet Soft Drinks in Schools,” Food Chemical News 48, no. 13 (May 8, 2006); and
“Beverages,” Media Week, May 1, 2006, p. SR16.

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