Following news that Coca-Cola and Nestle plan to dissolve their Beverage Partners Worldwide agreement by 2018, the Ready-to-Drink (RTD) tea category is poised to receive considerable disruption. Since 1991, Coca-Cola has managed bottling, marketing, and distribution for Nestle’s Nestea brand in as many as 52 major markets. As each organization’s brand aspirations changed, Nestle sought internal development and more brand ownership. Terminating the agreement reduces Coca-Cola into a distributor for seven markets and returns business management to Nestle across all other regions. There is no doubt that both companies see potential in RTD tea, but a key question is what each company will do to grow their own tea business. The critical question is whether Nestle may seek full control for the remaining markets at a later date, such as in Canada.
One only needs to look at markets where Nestle already manages Nestea to understand the company’s intentions. Nestle began a turnaround effort for Nestea to launch healthier items, update branding, and advertise to consumers. The innovation pipeline churned out fruit-flavoured teas, and brewed teas, and reformulated in-market items. The Nestea logo was re-designed and the bottle packaging updated with a wider mouth and easier bottle grips. The brand launched an integrated marketing campaign borrowing equity from their seventies campaign centered on the “Nestea plunge”. With Nestle, the tea brand’s enjoys elevated focus and importance while facing less competition for funding and support.
Coca-Cola’s plans for growth shifts into renewed support for their own tea brands. Unlike the joint venture splitting Nestea’s management across two companies, Gold Peak and Honest Tea are brands acquired and integrated to the Coca-Cola family. Both brands benefit from greater attention and clearer brand roles, especially Gold Peak. Following Nestea’s departure from Coca-Cola’s portfolio, Gold Peak gained stronger innovation support with recent announcements of tea lattes and RTD coffee entering the market this year. Without a doubt, innovations will receive advertising and promotional support so Gold Peak will soon see a spike in activity and market awareness.
In Canada, the question is “when” Nestle will seek full Nestea ownership. Coca-Cola Canada is releasing three Gold Peak Tea skus and that is a signal that the organization is preparing for Nestea’s departure. Unlike other markets where Gold Peak is available, the three Canadian skus compliment the Nestea portfolio. It may be most beneficial for Nestle to have Nestea ownership where the brand will receive the necessary support to grow. After all, other geographies have proven that the growing RTD tea market can sustain Coca-Cola, Nestle, and many more competitors. The ultimate benefactor goes to consumers where more product choice is available to suit their refreshment needs.