ARIZONA ICED TEA IS IN STEEP ASCENT

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Brooklyn street smarts and Southwestern imagery are proving a winning marketing combination for iced tea.

Arizona Iced Tea, known for its extra tall, pastel 24-ounce cans and long-neck bottles, is the fastest-growing brand in the burgeoning $905 million ready-to-drink segment.

First introduced two years ago in just four markets, Arizona in May went national with a 12.6% share and a No. 4 ranking behind Snapple Beverage Co.'s Snapple, Pepsi Lipton Tea Partnership's Lipton and Coca-Cola Nestle Refreshments' Nestea.

Sales for the product are expected to pass $300 million this year, more than triple 1993's take.

And Arizona, created by Brooklyn, N.Y.-based beer distributors Ferolito, Vultaggio & Sons, won't stop there. A licensing deal with Leader Candies created an Arizona frozen novelty in two iced-tea flavors and lollipops in five flavors, now rolling out. By September, the company hopes to introduce a chocolate drink.

"We have tons of plans to reach out in all kinds of directions," said Francie Patton, director of marketing. She noted Ferolito is looking to do an initial public offering with Goldman, Sachs & Co. sometime next year. "Who knows where we'll go next."

But all is not completely sunny for Arizona. Ferolito went from selling 700,000 cases its first year to more than 10 million the next, and now is having some trouble meeting demand. The company's small advertising and marketing budget has been handled in-house, but Ferolito now thinks it may need an agency.

Most important, now that the Coca-Cola and Pepsi partnerships have begun to put real marketing muscle behind their brands, the question is how long a small independent marketer can stay in the game. Arizona's three rivals combined will spend more than $125 million on advertising this year.

"Arizona's success is all about gulpability," said Tom Pirko, a consultant with New York-based Bevmark. "But it's being attacked on all sides. Smaller companies are treading dangerously close to patent infringement in copying the brand, and Coke and Pepsi are really beginning to play this year."

Herve Cathelin, VP-marketing of No. 3-ranked Coca-Cola Nestle Refreshments, said: "In such a fast developing market, there is room for a lot of players. But right now, I'm more concerned about room for us-and we want a big space."

The Coca-Cola joint venture in June introduced its new 151/2-ounce "Plunge In" tall cans and 64-ounce containers and refrigerated cartons. The company is also going after Arizona's value-price appeal by launching Nestea Cool, priced lower than other Nestea iced tea products. Arizona is priced at 99 cents a can in most markets.

Ms. Patton said she believes Ferolito's unique background will help Arizona keep growing despite the competition.

John Ferolito and Don Vultaggio began their careers as beer distributors in New York's inner city areas. Working seven days a week, they built their reputations through word-of-mouth and personal experience with their markets.

The company introduced the highly successful and controversial Midnight Dragon and Crazy Horse malt liquors in 1986 and 1992, respectively. Its national beer distributor network handles most of Arizona's distribution, a key to the company's success, Ms. Patton said.

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