Snapple Beverage Corp.

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Snapple Beverage Corp.

founded: 1972

Contact Information:

headquarters: 212 wolcott st.
brooklyn, ny 11231 phone: (718)875-4650 fax: (718)875-0256 url: http://www.snapple.com

OVERVIEW

Snapple develops, produces, and markets ready-to-drink teas and juice drinks and is a market leader in the premium beverage category. Begun in 1988 as a small regional company that promoted its product as an alternative to carbonated soft drinks, the company proclaimed that its products were "made from the best stuff on earth." The company went public and national in 1992 and saw sales skyrocket more than 190 percent over the following two years. Looking for a company to beef up its beverage division, Quaker Oats bought Snapple in 1994.

The Quaker Oats' acquisition of Snapple turned out to be a textbook example of what can go wrong in company mergers. The new owners' corporate culture was different from Snapple's—more corporate, more formal. The old Snapple sales force was let go, the distribution network was upset, the number of Snapple flavors was reduced, the formula was tinkered with, and the old advertising campaign—which brought Snapple popularity to begin with—was terminated. Quaker Oats finally sold Snapple to Triarc Companies, Inc. in 1997 for $300 million—a loss of $1.4 billion for Quaker.

Some analysts feel Snapple is still a good brand name that, with the right company, could rise again. Triarc feels the same. It plans on rebuilding the Snapple brand with consistent advertising, good distributor relationships, promotions, and new flavors and products. In 1997 Snapple rolled out such new flavors as green teas, and in 1998 it introduced WhipperSnapple, a dairy and fruit smoothie that came in six flavors.

COMPANY FINANCES

Snapple was a small company that grew quickly. From the time the company went public in 1992 until it was sold to Quaker Oats in 1994, sales grew by 191.8 percent, from $231 million to $674 million. From the time of the Quaker Oats acquisition until it was sold again, sales for Snapple plunged 22.6 percent, from $674 million in 1994 to $550 million in 1996. Snapple lost over $100 million in 1996.

Parent company Triarc Companies, Inc. is hoping a rebuilt Snapple will also rebuild Triarc's bottom line. From 1995 to 1997 sales fell 26.8 percent from $1.1 billion to $795 million. Costs have risen 41.4 percent (most notably in advertising, sales, and distribution) from $128 million in 1995 to $180.5 million in 1997. Acquisition-related costs, which were zero in 1995, rose to $31.8 million in 1997. Before charges related to extraordinary items, income for Triarc had risen. In 1995 the company posted a loss of $37 million; in 1997 it reported a gain of $165,000. During fiscal 1997 Triarc's stock reached a high of $25 1/4 and a low of $11. The company did not pay dividends in 1996 or 1997 and does not intend to in the near future.

ANALYSTS' OPINIONS

Quaker Oats acquired Snapple in 1994 and sold the company to Triarc in 1997. Analysts are nearly unanimous in declaring the Quaker Oats' ownership of Snap-ple a disaster. Gone were the quirky things that made Snapple Snapple. The number of flavors was cut back, packaging was redesigned, and the advertising campaigns were scrapped. Some analysts maintain that the testimonials by celebrities and the reading of mail by Wendy Kaufman (a real Snapple employee) got people talking about the product in the first place and made consumers anxious to try it.

Some analysts say the biggest mistake Quaker Oats made was changing Snapple's distribution. The products had been distributed through a network of small, independent distributors, who worked hard to get stores to stock the teas and juices. When Snapple was successful, so were they. Quaker Oats instead put Snapple in the same distribution chain as Gatorade. Since Quaker Oats distributed directly to supermarkets, the independent distributors could only sell Snapple (and at Quaker's insistence, Gatorade) at drugstores and small "mom and pop" stores. Since distributors make money on sales, the loss of the supermarket accounts made the distributors very unhappy. The distributors previously felt, and rightly so, that they had contributed greatly to Snapple's success. Now they were being told they weren't going to be able to cash in on that success. Independent distributors no longer had a reason to push Snapple's products, and sales and market share declined as a result.

HISTORY

Snapple was started in Brooklyn, New York, by Lenny Marsh, Hymie Golden, and Arnie Greenberg. They claimed the beverage was "made from the best stuff on earth," and marketed it as an alternative to sweet soft drinks. The trio spent three years perfecting their formula to create a bottled product that actually tastes like brewed tea. Snapple hit the coolers in 1988 in a few flavors, banking on the product's healthful image. In 1992 Snapple was purchased by an investment firm and, soon after, the company went both public and national.

The next few years were ones in which seemingly nothing could go wrong. Snapple was selling, selling, and selling. Its sales increased 119 percent in 1993—the third consecutive year in which Snapple's case sales more than doubled. Company executives said its market share was continuing to grow. It announced the construction of a $25 million plant in Tolleson, Arizona, which was designed to offer steady product supply, especially in the western states. The company boasted about its 52 flavors through a unique ad campaign. Wendy the "Snapple lady" was introduced to television viewers and its quirky, cult beverage status was established.

FAST FACTS: About Snapple Beverage Corp.

Ownership: Snapple is a wholly owned division of the Triarc Companies, Inc., a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: TRY

Officers: Nelson Peltz, CEO, Triarc Companies; Peter W. May, Pres. & COO, Triarc Companies; Michael Weinstein, CEO, Triarc Beverage Group

Employees: 2,000 (1997, Triarc Companies, Inc.)

Chief Competitors: Snapple competes against all companies that make beverages—especially those making iced teas and premium iced teas and juices. Some competitors include: AriZona IcedTea; Lipton; Nantucket Nectars; Nestea; and Ocean Spray.

The years between 1994 and 1996 were rough for Snapple. The company was sold yet again, this time to Quaker Oats for $1.7 billion. It had been hoped that with a major corporation behind Snapple the company could be taken to the next level of success. Distribution was changed without consulting distributors, and Snapple lost both money and market share. Quaker Oats reduced the number of Snapple flavors to 35 and tinkered with the formula of those it retained. Worse, in 1996 Wendy was ordered not to answer any more Snapple fan mail. The humorous, popular advertisements were scrapped, and a new approach never caught on with the public. In desperation, Quaker Oats gave away $40 million worth of Snapple in the summer of 1996, but even that ploy failed to generate sales. The company reportedly lost more than $150 million on Snapple in a two-year period.

Quaker Oats turned to Mike Schott, formerly of AriZona Iced Tea and Nantucket Nectars. He was brought in to manage the company in August 1996 primarily to resolve the numerous ongoing problems and rebuild the brand. One of his tasks was to build consumer awareness of Snapple's diet products. At that time Quaker was the third-largest beverage company, after Coke and Pepsi, and the largest national vendor of noncarbonated drinks and fruit drinks.

Beverage World named Snapple "The Beverage of the Decade" in 1997, just before yet another round of corporate seismic activity. Quaker sold the company in April 1997 for just $300 million. The new owner was Triarc Companies, a firm credited with assisting in the resurrection of Mistic teas and juices. Triarc firmly believed Snapple's name was a good one, and that its fortunes could be turned around with the right approach.

STRATEGY

Triarc had put several strategies in place to bring Snapple back to the prominence it once enjoyed. Wendy was brought back for a final commercial to get consumers excited and talking about their products again. While Wendy would no longer appear in advertisements, she would continue to do promotional work for Snapple. Triarc wanted to repair the damage Quaker Oats did to the distribution line, to encourage distributors to talk up the product and push it once again to their customers. The company planned to run several promotions in 1998, including "Drink a Snapple a Day" and "Look Under the Cap to Win Nothing Instantly."

Triarc planned to advertise and promote heavily to bring the Snapple name to the forefront and rebuild brand loyalty. The strategy was to use consistent advertising to create product awareness. Network television advertising would be used heavily, along with local television spots and some radio advertising. In 1998 Snapple launched a $20 to $25 million advertising campaign that featured vignettes of people using Snapple in everyday life. For example, in one spot a math problem is solved by using an abacus made from Snapple bottles instead of beads.

INFLUENCES

In 1993 some analysts said the fad of gourmet, ready-to-drink iced teas would wane. In order to sell, teas would have to be sold in cheaper multi-packs. They pointed out that making iced tea at home was easy and cheaper than buying it. During that year Lipton and Nestea forged alliances with PepsiCo. and Coca-Cola, respectively. It was felt that the marketing and distribution strength of the soft drink giants would overwhelm and eventually crush Snapple. Snapple executives stated they hoped they could coattail on the giants' entry into this market segment.

CHRONOLOGY: Key Dates for Snapple Beverage Corp.

1972:: Unadulterated Food Products, Inc. is founded to sell pure fruit juices and unusual blends to health food stores
1978:: Unadulterated purchases the Snapple name and markets a carbonated apple juice
1980:: The company expands their line to include other all-natural juices
1982:: Adds natural sodas to their product line
1988:: Unadulterated perfects a method to bottle tea without needing preservatives
1989:: Company revenues from non-carbonated beverages increases by 600 percent
1992:: Snapple Holding Company is formed and buys 70 percent of Unadulterated, merges with Unadulterated to become Snapple Beverage Corporation, then goes public
1994:: Quaker Oats purchases Snapple
1997:: Snapple is bought by Triarc companies

Prices in the premium ready-to-drink tea category in late 1996 were being forced down due to the sheer number of beverages in the marketplace (approximately 3,500 new beverages were introduced in 1996). Consumers had been willing to pay a premium for these beverages, but as the drinks became better known and more brands were offered, prices fell. Snapple executives believe there is still a niche for gourmet teas and juices, and that with advertising and promotions to build brand loyalty, they will enjoy strong sales again.

CURRENT TRENDS

Consumers in the 1990s began to look for more products that gave nutrition and/or other health benefits. Snapple is taking advantage of this and the popularity of juice bars with the introduction of WhipperSnapple, a blend of juice and dairy products. WhipperSnapple is a shelf-stable product, meaning it needs no refrigeration, and is packaged in a 10-ounce swirl bottle. Two of the six flavors are called "Power Drinks": berry, with ginseng, echinacea, and bee pollen; and citrus, with gingko biloba, spirulina, and wheatgrass.

PRODUCTS

Snapple is best known for its line of iced teas and juices in off-beat flavors, in both regular and diet formulations. When Triarc purchased the company in 1997, it introduced a new flavor of orange tropic—Wendy's Tropical Inspiration, which coincided with the final "Wendy" commercial. Also introduced in 1997 were three herbal teas and a new line of drinks, Snapple Farms, available in five flavors. New for 1998 was Whipper-Snapple, a blend of fruit juices and purees with dairy products.