Stewart’s Beverages

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Stewart’s Beverages

Snapple Beverage Group
709 Westchester Avenue
White Plains, New York 10604
U.S.A.
Telephone: (914) 397-9200
Toll Free: (800) 964-7842
Web site: http://www.drnk.com

Division of Snapple Beverage Group
Incorporated: 1987 as Cable Car Beverage Corporation
Employees: 100 (1999 est.)
Sales: $35 million (1999 est.)
NAIC: 31211 Soft Drink Manufacturing

Stewart’s Beverages is best known for its premium soft drinks that evoke a nostalgic experience through such old-fashioned flavors as Root Beer, Cream Ale, Grape, Cherries N’Cream, Orange N’Cream, Key Lime, and Ginger Beer. Offering its soft drinks in long necked or barrel-shaped glass bottles, Stewart’s also markets a line of gourmet diet sodas under the Sbrand name. An independent company under the parentage of conglomerate Triarc Companies Inc. until June 2000, Stewart’s was spun off as a part of the Snapple Beverage Group, which became a wholly owned subsidiary of Cadbury Schweppes plc in October 2000.

Origins

While the history of Stewart’s Beverages may be traced through the formation of the Cable Car Beverage Corporation in the 1980s, the history of the original Stewart’s root beer reaches back to 1924, when a schoolteacher named Frank Stewart decided to make some extra income by selling root beer. Stewart perfected a recipe and opened a stand in his hometown of Mansfield, Ohio, at which he sold mugs of Stewart’s root beer. The beverage remained a popular fountain drink for 66 years, during which time a franchise of Stewart’s Drive-Ins was born with outlets in the Midwest and Mid-Atlantic United States.

Stewart’s root beer was not bottled for mass consumption until 1990, when the Cable Car Beverage Corporation acquired the bottling rights. Cable Car had undergone several corporate transformations and had its origins in the reorganization of Great Eastern Energy Corp., a Denver-based oil and gas exploration and production company. Great Eastern sold its oil and gas properties in 1984 and hired consultant Samuel M. Simpson to examine other business opportunities. After studying over 100 businesses, Simpson steered the company toward the food and beverage industry. The company was renamed Great Eastern International Inc., and Simpson was named vice-president of the company. (He would eventually become CEO.) Great Eastern entered the food and beverage business with the support of its parent company, ATS Resources, Ltd., of Australia, and with funds from a private offering of stock. Simpson and other officers of the company formed Capvest Limited as their shareholding entity.

In 1986 Great Eastern purchased Quinoa Corporation of Boulder, Colorado, a natural foods company involved in importing quinoa, a highly nutritious South American grain. The company sold whole grain quinoa and quinoa flour under the brand name Ancient Harvest to health food stores and grocers, primarily in Colorado and Southern California. Quinoa Corporation intended to distribute the grain, grown in Peru, Bolivia, and Mexico, nationally and internationally.

Great Eastern’s 1986 revenues, $93,873, were derived solely from the Quinoa Corporation. After its first full year under Great Eastern’s parentage, in June 1987, the company reported $453,427 in revenues with a net loss of $790,432. Private label bulk sales accounted for 30 percent of revenue. In fall of 1987, the company introduced three new quinoa products, flat and spiral shaped dry pasta and wheat-free dry pasta.

Great Eastern’s entry into the beverage business began with the June 1987 acquisition of Sheya Brothers Distributing, Inc., a Denver-based distribution company that focused on all-natural premium juice and soda beverages, flavored and unflavored seltzers, and carbonated and non-carbonated mineral waters. The company served retail stores in Denver and Colorado’s other main cities along the front range of the Rocky Mountains.

The August 1987 acquisition of Old San Francisco Seltzer, Inc. (Old SF) complemented the Sheya Brothers acquisition. Old SF marketed naturally flavored and naturally sweetened seltzer waters. Most bottling and distribution was conducted by independent companies; Old SF sold the concentrated flavor syrup for mixture with seltzer water to regional bottlers under its licensing agreements. Old SF also used contractors for bottling and distribution. The products sold in grocery stores, convenience stores, and liquor stores in the United States and western Canada.

Simpson soon realized, however, that the company’s scope had become too broad. An 82 percent share of the company’s interest in the Quinoa Corporation was divested in June 1988, as total net losses for the year reached $1.4 million on revenues of $3.2 million. As Great Eastern did not have an outside line of credit and depended on funds from operations and from its parent company, Cap vest (which had acquired a majority interest in Great Eastern in 1987), the sale of Quinoa Corporation allowed Great Eastern to concentrate its limited resources in one business.

New Focus and Name in 1987

In streamlining operations, Simpson organized the company under the new name Cable Car Beverage Corporation. He also began hiring a management team with experience in the beverage industry. James Lutz, formerly general manager of Royal Crown Bottling, joined Cable Car as vice-president of sales in 1988, while James Fox, brand director for Coors Light, joined the company as senior vice-president of sales the following year.

While searching for opportunities to expand, Cable Car cultivated its existing businesses. The company expanded distribution of San Francisco Seltzer (as it was renamed) in Canada through a ten-percent stake in San Francisco Beverages, an independent bottler. Through that deal, Cable Car received a five-percent gross royalty on that company’s sales of the product. In June 1989 Sheya Brothers acquired Arrowood Distributing Company, a beer distributor in the Denver metropolitan area.

Cable Car’s greatest inroads in the beverage industry, however, were realized when Simpson approached Stewart’s Restaurants to produce, bottle, and distribute Stewart’s brand root beer. By that time, Stewart’s Restaurants was franchising some 70 Stewart’s Drive-In Root Beer stands in New York, New Jersey, Ohio, Pennsylvania, and West Virginia. After six months of discussions with Michael Fessler, owner of Stewart’s Restaurants, Simpson obtained an exclusive licensing agreement in July 1989.

Cable Car supported expansion into branded beverages with private and public securities offerings in October 1989 and June 1990, raising a net total of $2.3 million. In addition to developing the Stewart’s root beer brand, the company acquired Aspen Mineral Water Corporation in November 1989. Cable Car added unsweetened flavorings to the product line and repackaged it for sale beginning in August 1990.

After nearly a year in development, Cable Car launched Stewart’s Original Root Beer in spring 1990. Cable Car packaged the soda in old-fashioned, long neck, amber bottles with the Stewart’s logo fired on in white ceramic. Initial test marketing took place along the East Coast, particularly in New Jersey, where a proven customer base for Stewart’s root beer already existed. Marketed for the premium beverage category, the 12-ounce bottles sold for approximately one dollar each, primarily at delicatessens and convenience stores. Using San Francisco Seltzer’s method of selling beverage concentrates to bottler-distributors, Cable Car sold 200,000 cases of Stewart’s Original and Diet root beers in 1990. Sales of Stewart’s beverages surpassed 500,000 cases in 1991.

Still, Cable Car operated at a loss as development of its branded product lines and the process of establishing a customer base kept expenses high. For the year ended June 1990 the company reported losses of $1.16 million on sales of $7.4 million, with 79 percent of sales originating from the distribution business. As the company’s marketing programs produced results and the company adjusted overhead expenses in accordance with actual need, Cable Car realized a 64 percent increase in sales to $12 million for June 1991, and its net loss was reduced to $0.5 million.

Stewart’s Original Root Beer was distributed in 13 states in 1991, and this figure was expanded to 26 the following year. Moreover, Cable Car began to penetrate the grocery store market, which accounted for less than 20 percent of sales. Most sales involved single bottles, including a 32-ounce “jug” introduced in 1991 and designed to stimulate take-home sales. A private offering of stock in November 1991 and its oversubscription fulfillment in January 1992 raised $1.1 million in capital for continued expansion. Simpson became the majority shareholder, with a 15 percent stake in the company. In 1992 Inc. magazine ranked Cable Car the 30th fastest growing public company in the United States.

1990s: The Rise of Stewart’s Bottled Soft Drinks

In partnership with Stewart’s Restaurants, Cable Car developed two new soda flavors. In May 1992 the company launched Stewart’s brand cream ale, diet cream ale, and ginger beer, a non-alcoholic beverage with a strong ginger zest. Advance orders of the products were higher than expected. Cable Car also signed a new licensing agreement with Stewart’s Restaurants to market Stewart’s beverages as a fountain product in 15 states. To oversee these operations, Cable Car formed a new subsidiary, Fountain Classics, Inc.

Company Perspectives:

Stewart’s Beverages has maintained Frank Stewart’s dedication to great taste while becoming the fastest growing micro soda company in the U.S.

Development of its branded beverages prevented Cable Car from expanding its distribution subsidiary. Subsequently, Shey Brothers was spun off, merging with AMCON, a wholesale distributor of groceries and health and beauty care products through eight states in the Midwest and Upper Great Plains. The Omaha-based company intended to continue Sheya Brothers’ distribution in Colorado. The merger involved a stock exchange with distribution of AMCON stock to Cable Car shareholders. Sheya Brothers had accounted for two-thirds of Cable Car’s revenues, so the spinoff resulted in much lower revenues on Cable Car’s balance sheet. In 1994, the first fiscal year to end December 31, Cable Car recorded revenues of $8.2 million and its first net income of $721,695.

Cable Car launched several new branded products in 1995. Stewart’s Country Orange ‘N Cream debuted in May 1995 and quickly became the company’s second best seller. The company expanded its Aspen brand with Aspen Spring Water, a non-carbonated spring water, and Aspen Extreme, a line of non-carbonated, fruit flavored sports drinks. At the behest of New England distributors, Cable Car developed a line of unsweetened seltzers. The company tested Fountain Classics Seltzers in eight New England markets during the summer 1995. Also, the debut of a 16-ounce, barrel-shaped bottle of root beer attracted new business and increased sales.

In 1996 Cable Car introduced Diet Orange ‘N Cream, Classic Key Lime, and Old-Fashioned Cherries ‘N Cream sodas under the Stewart’s name. Stewart’s had in fact become so popular that Cable Car opted to sell off its Aspen Water and San Francisco Seltzer operations, which helped finance further development of the successful Stewart’s brand. At this time Stewart’s beverages were available in 40 states through over 200 distributors.

New Parentage in the Late 1990s

In November 1997, conglomerate Triarc Companies completed its acquisition of Cable Car in a stock exchange valued at $31 million. Over the previous four years Triarc had acquired Snapple Beverages, Mistic Brands, and Royal Crown Cola, as well as a chain of Arby’s Restaurant franchises. Triarc allowed Cable Car, renamed Stewart’s Beverages in 1999, to operate without changes or interference as a subsidiary of Snapple Beverages. Triarc intended to create a functionally integrated company, acquiring Millrose Distributors of New Jersey, the second largest distributor of Stewart’s products, and California Beverage Company, which held distribution rights for the City and County of San Francisco.

Stewart’s continued to expand as the fastest growing super-premium soda in the United States. Under Triarc ownership, Stewart’s distribution had expanded to all 50 states, as well as to Canada and the United Kingdom. Sales increased 13 percent in 1998 and 17 percent in 1999. While single-bottle “cold vault” sales in convenience stores and delicatessens comprised 75 percent of revenues, Stewart’s attained a two percent market share of the market for packaged premium beverages in convenience stores, grocery stores, and mass merchandisers.

In 1999 Stewart’s celebrated the 75th anniversary of Stewart’s Root Beer with special promotions that emphasized the nostalgic appeal of drinking an ice-cold root beer in the summertime, particularly at a baseball game. A national promotion involved a drawing for trips to the World Series and the All-Star baseball games, while local promotions supported Little League baseball.

Stewart’s continued to develop nostalgic yet unique soda flavors. The company introduced Classic Grape Soda in 1998 and Peach Soda in 1999. Triarc supported production of the new beverages with a $5 million construction project, building a dedicated production line for Stewart’s beverages at the Mill-rose bottling facility. The new line allowed the company to refine operations and logistics in a manner that accommodated growth in volume.

In May 2000 Stewart’s launched “S”, a line of low-calorie, gourmet flavored soft drinks and the first line of gourmet diet sodas on the market. Available in Black Raspberry, Orchard Peach, Ruby Red (grapefruit), Vanilla Cream, and Wild Cherry flavors, the Sbeverages were packaged in sleek bottles etched with an “S” in white. Stewart’s sweetened the lightly carbonated beverages with sucralose and Ace K, artificial sweeteners that they believed tasted better than the popular aspartame. After test marketing in California, Stewart’s initiated distribution in 35 markets, mostly in the Midwest and Mid-Atlantic states. Distribution channels included Safeway, Kroger, and Albertson’s grocery store chains, as well as 7-11 stores in California and Florida. A four-pack of 11-ounce bottles sold for anywhere from $3.29 to $3.50, while individual bottles sold at delis and convenience stores ranged in price from 99 cents to $1.49.

In 2000, after only seven years in the beverage industry, Triarc decided to spin off its soft drink businesses. Toward that end, it reorganized the premium beverage companies—Snapple, Mistic, and Stewart’s—and the line of soft drink concentrates—Royal Crown Cola, Diet Rite, RC Edge, and Nehi—under the Snapple name. Headquarters of the various operations were to be merged at Snapple’s offices in White Plains, New York. Snapple announced its intention to go public in June 2000, but Triarc sold the company to London-based Cadbury Schweppes plc, a private company, for $1.45 billion the following October.

Key Dates:

1924:: Stewart’s root beer is invented.
1987:: The Cable Car Beverage Corporation is established.
1989:: Cable Car obtains a licensing agreement to bottle Stewart’s root beer.
1991:: Company sells 500,000 cases of Stewart’s Original Root Beer.
1992:: Cable Car introduces Stewart’s Cream Ale, Diet Cream Ale, and Ginger Beer.
1994:: Annual sales of Stewart’s Original Root Beer exceed one million cases.
1997:: Triarc Companies acquires Cable Car Beverage.
1999:: Triarc spins off Stewart’s as part of the Snapple Beverage Group.
2000:: Cadbury Schweppes plc acquires the Snapple Beverage Group, including the Stewart’s division.

Cadbury Schweppes maintained that the Snapple Beverage Group would remain a stand-alone company, with Snapple, Mistic, and Stewart’s serving as its brand names. Simpson, who had built Stewart’s Beverages into the fastest growing premium soft drink company, and had remained as CEO of Stewart’s during its tenure with Triarc, left shortly after the Cadbury Schweppes acquisition. New leadership took over in December 2000, as John L. Belsito was named president of the Snapple Beverage Group. Though its corporate identity was once again being restructured, Stewart’s root beer and other soft drinks remained popular and widely available.