Last year, when Coca-Cola was in discussions with the AriZona Iced Tea folks about an alliance, I wasn’t sure that such a deal would prove to be a boon for Coke or AriZona, or for that matter, the industry.
Despite the care both sides showed in structuring things so the AriZona people would continue to operate autonomously, there have simply been too many cases where, despite similar precautions and the best of intentions, new-age brands acquired by big CSD players have quickly gone inert on the shelf. There’s just a chasm in corporate cultures and operating style.
In fact, I’ve had this little fantasy conversation to reflect what an AriZona/Coke alliance would have been like a few years ago, when AriZona was launching its “Rx” line of fortified drinks. “So, who’s this J.W. Lippincott apothecary you’ve got signing all the labels?” the Coke lawyer would have phoned to ask.
“Oh, just some guy I made up,” Don Vultaggio would have replied.
Coke lawyer: “Can we talk to him?”
That’s why I was relieved when Glaceau negotiated its newly announced deal with India’s Tata Group rather than, as often rumored, Coke or Pepsi or Cadbury. The deal, in which Tata is investing $677 million to take a 30 percent stake in the company, seems a milestone on two counts. First, it insures the continued independence of a group of brands that have been crucial to the viability of many independent distributors. Second, it shows that the market accepts that – though it’s not so hard to knock them off, as Pepsi’s Life Water foray showed – innovative brands like vitaminwater won’t be so easily dethroned by deeper-resourced rivals.
We’re at a point where beverage consumers are groping for new alternatives, making it important that innovative young brands find a route to store shelves. The DSD channel still represents the most potent vehicle to accomplish this, and after a painful period of exclusion, we’re seeing doors begin to open again. They’re opening among beer wholesalers, including once-isolated Anheuser-Busch distributors who may be looking to build non-alcoholic portfolios around Monster Energy. They’re opening among major soft drink bottlers, who’ve begun to grumble that they’ll look beyond their core suppliers, if necessary, to fill profitable growth niches. And they’re opening among independent houses that are getting sustenance from the brisk growth and strong margins of brands like Red Bull, Monster, Fiji Water, Fuze – and vitaminwater.
Glaceau founder J. Darius Bikoff was emphatic on this point in his conference call announcing the deal. “We’re not in the Coke system and we’re not in the Pepsi system domestically, to speak of,” he told one questioner. “But we are in what you’ve referred to as the independent system, and I’m hoping that after today’s announcement, we’re all going to agree to re-brand that independent network the Glaceau network.”
To his credit, though the Tata capital infusion gives him the resources to undertake major initiatives among the chains and other mega-retailers, Bikoff offered not a hint that he may meld his DSD thrust with more direct approaches under the “hybrid” rubric.
“It’s only been because of the relationships that we have with our distributors that we’ve been able to nurture the brand to the level it is today, and we’re not going to make any change now,” he promised.
These days, you don’t hear declarations like that too often.
Mind you, this is no rant against Coke, Pepsi and Cadbury, who all are undertaking serious initiatives to buttress their internal innovation and, given their resources and an urgency born of CSDs’ woes, certainly should not be written off. It’s just a reminder that, big guy or small guy, competition makes us all better. Glaceau’s decision to ally itself with a partner outside of long-established soft-drink channels represents a big step towards assuring the little guys that they’ll have somewhere to go with their good ideas. After that, let the best brands win.
Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.