Coke-Nestle Partnership to Market Nestea to End

ATLANTA, Ga.

Bottled brands like Honest Tea and Sweet Leaf Tea that were small batch runs in 1998 this week upended the long-standing partnership between Coca-Cola Co. and Nestle, SA. to produce and distribute Nestea in the United States.

Beverage Partners Worldwide, formed in 2001, will dissolve as Coke’s license for Nestea expires by year-end here in the U.S. but the partnership will live on in Europe and Canada. In Taiwan and Hong Kong Coke will continue to license the Nestea brand, according to a joint statement released Jan. 6.

The volume of Nestea sold in the U.S. has declined significantly from the 113.5 million cases sold in 2000 when the 50-50 agreement was negotiated. Lipton tea, on the other hand, sold 247 million cases for PepsiCo Inc. in 2010, compared to Nestea’s 78.1 million cases, according to Beverage Digest. The Pepsi Lipton Tea Partnership holds a 24 percent share of the market, worth $653 million.

In 1998 beverage titans Coke-Cola and Nestle were not paying much attention to the locally bottled Austin, Tx.-based Sweet Leaf Tea created by Clayton Christopher and David Smith or the Bethesda, Md.-based Honest Tea, co-founded by Yale School of Management Student Seth Goldman and his professor Barry Nalebuff.

By 2007 however, sales of Honest Tea topped $13.5 million on volume of 30 million bottles and grew 72 percent the next year to $23 million.

Coke made the first move outside the partnership in 2008 when it purchased a 40 percent stake in Honest Tea and expanded distribution to 65,000 outlets. By 2010 Honest Tea was selling 100 million bottles and earning $71 million. In 2011 Coke completed the acquisition. Coke also invested heavily in Gold Peak, a refrigerated iced tea, sold in grocery stores. According to Beverage Digest Coke will launch a line of cold-fill teas under its “Fuze” brand to replace Nestea.

In May 2011 Nestle Waters North America acquired Sweet Leaf Tea Company and its Tradewinds brand, founded in 1993. Nestle earlier had invested in the rapidly growing organic brand. Sweet Leaf’s earnings were $53 million in 2010. Both Honest Tea and Sweet Leaf are on track to reach $100 million in sales.

Ultimately these significant investments in competing brands in the U.S. strained the Beverage Partnership, ending a 20-year relationship that began with the joint venture Coca-Cola and Nestle Refreshments.

All three bottlers and segment major Arizona Tea, which has a 15.5 percent share, are eyeing the extraordinary growth seen in bottled teas. Sales of refrigerated tea grew 17 percent in 2010 and bottled and canned tea grew 5.8 percent, according to Packaged Facts, Tea and Ready-to-Drink Tea in the U.S. (Oct. 2011).

Packaged Facts projects that retail tea market growth will edge up from approximately 6.6 percent  in 2012 to 8.7 percent in 2014, reaching $8.3 billion in that year. Their research shows that 45 percent or 51.8 million U.S. households purchased ready-to-drink cold tea in 2010.

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Dan Bolton

About Dan Bolton

Dan Bolton edits STiR Tea & Coffee Industry International. He was formerly editor and publisher of World Tea News and former editor and publisher of Tea Magazine and former editor-in-chief of Specialty Coffee Retailer. He is a beverage retail consultant and frequent speaker at industry seminars and conferences. His work has appeared in many beverage publications. He was a newspaper reporter and editor for 20 years prior to his career in magazines. Dan is the founding editor of Natural Food magazine and has led six publishing ventures since 1995. He lives in Winnipeg, Canada.

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