Coca-Cola Co. last week dissolved the Coca-Cola Nestle Refreshments Co., its joint venture with Nestle, and instead will handle the Nestea brand from Coca-Cola's Atlanta headquarters through a licensing agreement. Nestle independently will develop and market Nescafe ice coffees. Coca-Cola bottlers will handle most distribution for both brands.
"Coke is finally getting serious about this market," said Jesse Meyers, publisher of Beverage Digest. "They're saying, we're going to take control of our future and make a real effort."
The dramatic move acknowledges the joint venture's disappointing results in the still burgeoning $1.2 billion ready-to-drink ice tea market. What Coca-Cola does now could make a big difference in how the market develops.
In the 52 weeks ended July 10, Snapple Beverage Corp. remained the supermarket dollar sales leader at $107.9 million, an 86.6% gain from a year earlier, Information Resources reported. The Pepsi-Lipton Tea Partnership's Lipton brand grew 228.9% to $85.2 million while Nestea rose by less than half as much at 111.1% to $40.3 million.
Perhaps more important, this summer the Pepsi-Cola Co. and Thomas J. Lipton Co. joint venture took the lead in volume sales, rising 221.4% to 13.8 million cases. Snapple dropped to No. 2 with an 83.8% gain to 12.3 million cases. Nestea stayed at No. 3, up 105.3% to 5 million cases.
Analysts have been predicting the demise of Snapple-which virtually created the market with its focus on good taste, intriguing flavors and quirky marketing-since Pepsi and Coca-Cola entered the field.
This year was seen as crucial because it was the first time Pepsi and Coca-Cola put major ad dollars behind their brands.
And heavy competition has had its effect. Snapple stock dropped several times this summer. The company's fruit drinks, growing at a faster pace than ice teas, are now the majority of volume sales. But Snapple continues to be a major ice tea player.
"Everybody said that once Coke and Pepsi came in, Snapple would die," Mr. Meyers said. "The latest news: Snapple did not roll over, and Coke did not dominate just by saying they'd be there."
Pepsi-Cola is certainly coming on strong but the results are mainly from Lipton Brisk, a value-price brand sold mostly in cans. If Coca-Cola's next focus is on its low-cost brand, Nestea Cool, the two could get caught in a price war that leaves the crucial premium segment to Snapple.
"I expect Coke and Pepsi to make this about ... low-price brands. That could be good news for Snapple, if they don't try to compromise their image by cutting prices," said an executive close to Coca-Cola.
Snapple does have other worries, however. A slew of smaller but aggressive competitors, led by Ferolito, Vultaggio & Sons' Arizona brand, are yapping at its heels. Arizona meets with agencies in New York next week to hear pitches for its first major campaign. Ads are now in-house.
And some criticize Snapple's advertising from Kirshenbaum & Bond, New York, as outdated.
"The iced tea market has reached a major plateau," said Tom Pirko, president of the Bevmark consultancy. "Now is the time for a breakthrough, really creative approach. But [Snapple is] settling for pabulum."
Snapple President-CEO Leonard Marsh disagrees, and even claims to be calm about challenges from Pepsi and Coca-Cola.
"I'd rather have a smaller piece of a huge category than a huge hunk of a smaller category. The question is, do I keep selling more each year," he said.