Cola's a danger brew even for fizzy Branson

RICHARD BRANSON was in cheerful mood when we spoke on Friday. He believes his plan to produce cola and other soft drinks and snacks under the Virgin tag may be his most profitable venture yet. But I got the impression it was not the money, but the prospect of taking on the mighty Coca-Cola Corporation that was really giving him his kicks. He outflanked the machiavellian British Airways and exposed its manoeuvring. Now he plans to be a thorn in the side of another firmly dug-in industry leader.

He was spurred into action by a paragraph in a book about the Atlanta- based drinks giant, For God, Country and Coca-Cola. In it a Coca-Cola executive was quoted crowing about the impregnability of the product: 'Without our economies of scale and our incredible marketing system, whoever tried to duplicate our product would get nowhere and they'd have to charge too much.' Branson seems to have taken the boast as a personal challenge.

The stakes are huge. Cola consumption in this country alone is pounds 700m a year. World consumption is around pounds 15bn. Branson's chances at first looked slim. He has absolutely no experience of the groceries industry, and when on Monday he announced the venture his plan looked pretty tinpot.

The idea was to produce 1,000 million cans of Virgin cola a year. Three million of them would be sold in Virgin clubs and hotels and on Virgin Atlantic flights. 'What about the other 997 million?' said the scoffers. Didn't Branson know distribution was everything in the supermarket industry?

It took three days for the patronising smiles to be removed. On Thursday Branson announced he had struck a deal with Tesco, the UK's second biggest supermarket group. More distribution deals are expected with other multiples, including one of the biggest off-licence chains. One large group is rumoured to be planning to sweep every can of Pepsi and Coke from its shelves in favour of the upstart Virgin. Branson is looking formidable already.

Till recently, own-label alternatives to Coke and Pepsi have been pretty feeble. But Cott Corporation, a fast-growing Canadian company, seems to be cracking the problem. Its phenomenal growth has been fuelled developing own-label alternatives for US supermarket groups, from Sam's American Choice in Walmart to Select in Safeway.

Now in the UK, Cott's Classic Cola has savaged sales of Coke and Pepsi in Sainsbury supermarkets: two years ago the big two accounted for two-thirds of Sainsbury cola sales; now it is one-third and falling. It was Cott which Virgin chose to make its cola.

A highly unscientific test by Independent on Sunday sub-editors (a demanding lot) found the Virgin brew bland and a bit thin - certainly not as strong a flavour as Coke. However, most independent blind tastings so far have pronounced the new product as good if not better than Coke.

There are plenty of other doubts. Investing any money in the British food and drink industry is a gamble. Price competition is fierce. The Virgin announcement coincided with the revelation that another tinned product - baked beans - are in some Scottish supermarkets at 4p for a standard can: a price last seen in the early 1960s.

But the real uncertainty is the danger of undermining the Virgin brand name. As we report on page 1, Branson's closest lieutenant, Robert Devereux, chairman of Virgin Communications, originally advised against the cola project, convinced it would cheapen the Virgin name.

Yet Branson seems intent on affixing the Virgin logo to all manner of products and services: vodka, personal computers, even credit cards. It is a dangerous game, even for Branson, who likes to keep any number of balls in the air simultaneously. His successes have always been sufficient to bankroll the disasters. Remember the ill-fated Event magazine, the unsuccessful pubs venture, or more recently the failed bid to run the national lottery? But then Branson's empire would always appal the management gurus who advise companies to slim down to their core businesses. Condoms, airlines, hotels, music, film production - all have been grist to Branson's mill.

It would not need much for his extraordinary popularity to take a knock from the fickle teenagers who so admire him. (After Mother Teresa, the Pope and the Archbishop of Canterbury, it is Branson whom young people would most trust to rewrite the Ten Commandments, a poll found last week.) For now Virgin is seen as a friendly, iconoclastic group taking on the Establishment and offering quality and value for money. However, it's but a short step to being perceived as cynically squeezing every last drop out of the company name.

There's hardly a senior executive of any consumer goods company who doesn't occasionally fret that the company name is not being fully exploited. As a brand it may soak up millions of pounds, even tens of millions, in advertising each year. There is always the temptation to expand into alien territory.

Virgin argues that its keiretsu structure of independent divisions allows it to exploit a single brand name in completely different industries. It points to similarly structured Japanese organisations such as Mitsubishi (steel-making and banking) or Yamaha (pianos, electrical goods, motorcycles). We shall see.

Meanwhile, if they're not worried yet in Atlanta, they jolly well should be. BA's former chairman, Lord King, famously underestimated Branson because he couldn't take the beard and the woolly pullies seriously. There's a lesson there even for Coca-Cola.