The Coca-Cola Co. and Nestle have confirmed that Beverage Partners Worldwide — their 20-year partnership marketing Nestea in the U.S. has been fundamentally altered to focus away from North America.
At the end of 2012, Nestle Waters North America will take over U.S. distribution responsibility for the Nestea brand, which has been sold by Coke since 1991. Coke has had a license agreement with Nestle for the brand since 2007. The brand has largely filled out the value-brand slot in the portfolio of tea offerings the company has provided to its distribution network and it will be replaced by a cold-fill brand extension of FUZE, which Coke bought from founder Lance Collins in 2007.
Coke’s other tea offerings include Honest Tea, an organic, premium brand it purchased last year from founder Seth Goldman, and Gold Peak, an internally-developed line of sweet teas that also have premium pricing although more of a mainstream feel. Other Coke tea offerings include Peace Tea, which it distributes on behalf of Monster Beverage Corp. (until recently Hansen’s Natural Beverage Corp.) and smaller brand Sokenbicha, which like Honest Tea is under the aegis of Coke’s Venturing and Emerging Brands Group.
Interestingly, the template for a “tea-plus” manufactured under the FUZE moniker is already in place at Coke: Subway franchises sell a brewed FUZE Tea version that is enhanced with b-vitamins and fruit flavors, much like the ones that the brand is apparently destined for in a variety of RTD and fountain settings. Additionally, the brand has long had some tea underpinnings — it has two existing RTD tea varieties, and also uses tea as a base for some of its other fruit juice blends.
FUZE has long been regarded as a highly innovative brand due to its varied platform, intricate packaging and functional orientation — its Slenderize variety remains its most popular — but it has been hard-pressed to find consistent footing within the Coke family, although the NOS energy drink variety that was also acquired as part of the FUZE purchase has been that company’s best-performing Coke-owned energy drink.
Meanwhile, the Nestea brand will move into the NWNA system and its own burgeoning tea portfolio at the end of this year. NWNA entered the tea business earlier this year with its purchase of Sweet Leaf Tea (and its Tradewinds property), itself an organic brand whose rise paralleled Honest Tea in the natural channel.
“We think Nestea will be a good fit,” said Jane Lazgin, NWNA’s director of corporate communications. “We’re putting a great deal of priority on our emerging tea business. We think it’s a great fit with our distribution system, our marketing programs and we’re looking forward to building our tea business. In the whole healthy hydration segment it will be a really nice complement.”
Nestea’s performance over the past few years indicates that the move may have been seen as a necessity by Nestle, the parent company of NWNA. The move has likely been coming for a while — Beverage Digest reported that Nestea’s own case sales had declined by 25 million from 2000 to 2011 — but in addition, the move by Nestle Waters North America into the tea business, particularly via Sweet Leaf, has put the companies in direct competition.
So why not expand Honest Tea, which Coke also acquired in 2011 via the same mechanism as its FUZE acquisition, the VEB Group, (albeit one that did not yet exist in name at the time of the FUZE purchase)? There’s the cost of Honest, a premium, all-organic, whole-leaf brand that wouldn’t easily fit into a cold-filled value-priced environment. Also, FUZE has proven to be a highly flexible entity itself.