Hitch Ride With
Coke Distributors
January 29, 2007;
Some frustrated Coca-Cola Co. bottlers are letting upstart drinks that the Atlanta beverage giant doesn't market hitch a ride on their trucks.
Honest Tea Inc. has had a devoted following ever since the Bethesda, Md., company won its first order in 1998 to brew 15,000 bottles of its organic iced tea for Whole Foods Market Inc. But beverage giants like Coke and PepsiCo Inc. had such a tight grip on distribution through their bottlers that it was hard for Honest Tea to get space on supermarket shelves and in convenience-store coolers.
Suddenly, though, Honest Tea has struck deals with Coke bottlers in California, Colorado and Pennsylvania to distribute Honest Tea. Several distributors for Anheuser-Busch Cos. and other large beer companies also have begun carrying its Heavenly Honey Green, Pomegranate White Tea with Acai and Peach Oo-La-Long flavors.
Two flavors from Honest Tea, which some Coke bottlers now carry.
Honest Tea's expansion is just one of a growing number of unusual alliances between beverage companies and distributors. Grappling with sluggish sales of their core brands and eager to expand, some distributors are making deals with new companies that market small, faster-growing beverages.
Coca-Cola Bottling Co. Consolidated, Coke's second-largest U.S. bottler, created a wholly owned subsidiary, BYB Brands Inc., in May 2006 to develop new types of drinks that it wasn't already getting from Coke in Atlanta. One such drink, a "premium coffee latte drink" called Cinnabon and created with retailer Cinnabon Inc., was launched last summer and is already being distributed in 41 states through agreements with Cadbury Schweppes Americas Beverages, a subsidiary of Cadbury Schweppes PLC and three Anheuser-Busch distributors, in addition to Coke Consolidated bottlers. Coke Consolidated is also selling a vitamin-enhanced water called Respect and Tum-E Yummies, a flavored water from BYB Brands.
Coca-Cola Enterprises Inc., Coke's largest U.S. bottler, recently signed a pact with Hornell Brewing Co. to distribute versions of Arizona iced tea. In the heyday of the cola wars, it was red trucks versus blue trucks, Coke versus Pepsi, but those days are receding. Lately, consumers are drawn to new, smaller brands "started out of garages" that aren't sold on a mass scale like Coke or Pepsi, says Norm George, president of BYB and Coke Consolidated's former marketing chief and chief customer officer. "You've got to have brands people want," he says.
Coke and its bottlers are separate companies, although Coke owns sizable stakes in its largest bottlers, such as CCE and Coke Consolidated. Coke bottlers have always distributed a few outside products; many sell Dr Pepper, which is owned by Cadbury. But those brands were generally big. And bottlers previously haven't started their own brand companies, as Coke Consolidated has.
It is too soon to say whether the moves have cut into Coke sales. The volume of Coca-Cola Classic sold in North America has declined since the late 1990s, although Coke's overall North American volume rose 2% in 2005. Data for 2006 are not yet available.
Even so, the moves present a conundrum for the Atlanta-based company, which relies on its bottlers to push its new drinks into the market. Late to the noncarbonated beverage wars, Coke lags behind Pepsi in those types of drinks. Its bottlers want the beverage giant to move more quickly to bring out new drinks in fast-growing categories such as iced tea.
Coke and Pepsi have also rankled their bottlers by channeling some noncarbonated drinks outside the traditional bottler system. A group of small Coke bottlers sued Coke and its biggest bottler last year over a plan to deliver Powerade to Wal-Mart Stores Inc. stores through an alternative distribution system; the sides are close to an agreement now to dismiss the suit, according to Beverage Digest.
"Clearly, we would prefer that our bottlers distribute our own brands," says Coke spokesman Dan Schafer. "Our role is to create innovation in our categories and we are working closely with our system to do that." He says Coke has recently picked up the pace of introducing new drinks. For example, the restructuring of a joint venture with Nestlé SA has given Coke greater flexibility to develop and introduce coffee and tea drinks.
Pepsi bottlers haven't embraced other companies' drinks the way Coke's have, partly because Pepsi's noncarbonated stable is stronger, bottlers and industry observers say.
For beer distributors, nonalcoholic drinks offer a way to offset rising costs as beer sales remain relatively flat. Dave Peacock, vice president of business operations for Anheuser-Busch, said in a statement that the company offers its distributors drinks such as Monster Energy and gives incentives to wholesalers that carry only its brands or those in which it has an interest.
Seth Goldman, president and "TeaEO"of Honest Tea, first reached out to Coke bottlers about six years ago. "They were hospitable, but we didn't get anywhere," he recalls. Then last year, bottlers and major beer distributors "started reaching out to us," at trade shows, he says.
Now, Honest Tea is appearing at Costco, Kroger, Chevron stations and other mainstream outlets. The company had $13.5 million in sales in 2006 (compared with Coke's $23.1 billion in global revenues for 2005, the latest full-year figure available). Honest Tea plans to fund its expansion with a $12 million equity infusion from investors including organic-food producer Stonyfield Farm, now owned by Danone SA, and Inventages Venture Capital Investment Inc., a private-equity firm whose limited investment partners include Nestlé.
By BETSY MCKAY
http://online.wsj.com/article/SB117003288942590723.html?mod=mm_media_marketing_hs_left
No comments:
Post a Comment