Nestle and Coca-Cola to End Nestea Joint Venture

Sixteen years ago Coca-Cola and Nestlé (Nestea) formed Beverage Partners Worldwide, a partnership to market bottled tea. The market segment was dominated by the Pepsi Lipton Tea Partnership (PLTP), a joint venture of (Lipton) and PepsiCo established in 1991.

Lipton remains the U.S. market leader with a retail value share of 13%. However, virtually every benchmark in the $4.5 billion ready-to-drink market which was considered “normal” at that time has since been overturned.

That is why Coca-cola and Nestlé announced that their 50-50 joint venture will dissolve Jan. 1, 2018. Going forward Nestlé Waters, a division headquartered in Virginia, will manage the Nestea brand in the U.S. and in much of Europe. The decision also frees Coca-Cola to more aggressively market its own tea portfolio, which now includes several billion dollar tea brands.

“The ready-to-drink tea market has evolved, and Nestle believes the time is right to develop Nestea independently,” Nestlé said in announcing the decision. The venture was already scaled back to just Europe and Canada in 2012.

Coca-Cola will retain a license to make and sell Nestea in Canada, Spain, Portugal, Andorra, Romania, Hungary and Bulgaria.

Carbonated soda dominated convenience and grocery stores so convincingly at the beginning of the millenium that stocking bottled tea was a minor concern to retailers. To capture market share, tea was formulated to resemble soda — sugary sweet and colored with artificial lemon flavor. That was before the precipitous 12-year slide in soda sales, which has made bottled water the top selling beverage by volume.

“Consumers are also moving away from sweetened bottled drinks toward water due to concerns about health and the environment,” writes Fortune magazine.

Nestle changed its formula and packaging last year. The new fruit-flavored Nestea drinks are made with sugar and stevia and have no corn syrup, artificial colors and flavors, nor GMO ingredients.

The decision to go it alone is evidence that Nestle has confidence its bottled teas will benefit from further investment. The 40-year-old brand was perceived as stale, but given the rapid growth in the RTD tea segment and early success with then new “healthy hydration” formulation Nestle is now likely to increase its stake.

RTD tea is expected to grow from about 35 billion liters in 2015 to 44 billion liters in 2020 at a rate of almost 20% faster than the rest of the soft drinks industry, according to FoodBev Media.

Source: FoodBev Media, Fortune