July 21, 2014 Leave a comment
Each summer I pay a little more attention to monitor the Ready-to-Drink (RTD) tea segment. Some of my beverage industry contacts say that AriZona’s dominance in the RTD tea segment have inspired other beverage companies to launch similar $0.99 tall cans to steal some of AriZona’s sales. Most recently, I’ve noticed both Nestea and Lipton stock some competitive offerings. Both have come out with tall cans of tea, with similar $0.99 price points labeled on the cans themselves. Given that AriZona has made $0.99 teas their claim to fame and have been selling them for many years already, how successful will Nestea and Lipton be at stealing some sales? More importantly, is selling tea at $0.99 profitable for Nestea and Lipton, or is there another reason for them to enter this segment?
Unlike AriZona, Nestea and Lipton have strong backers. Nestea’s partnership with Coca-Cola provides them a robust distribution network. Lipton also has a strong market coverage through their agreement with PepsiCo. Both competitive brands would be able to leverage the sales and merchandising support of Coca-Cola and Pepsi to ensure retailer shelves are always stocked. Beyond retail coverage, both Nestea and Lipton would get premium in-store placement locations. Coca-Cola and Pepsi both own front-end cooler space as well as multiple locations within a grocery store, giving them the opportunity to stock products to their liking within these areas. So unlike previous challengers, AriZona will face their strongest competition yet in Nestea and Lipton. These two competitors have the necessary support and expertise to erode AriZona’s leadership in this segment.
Given these dynamics, it certainly appears that Nestea and Lipton stand as formidable opponents to AriZona and steal their sales. However, both Nestea and Lipton are known best for their offerings in a different tea format: bottled tea. By rolling out these $0.99 aluminum cans, don’t they risk cannibalizing their own sales from a more profitable tea format? Wouldn’t this make the decision to launch 695ml tea cans with $0.99 printed on it hurt their total tea business? Given the risk associated with devaluing sales potential, why come out with tall cans at all? In the end, they are just as likely to steal sales from AriZona as they are on stealing their own sales.
Simply put, it may be better to get less dollars from the consumer, than get none at all. If their market research indicates that the same consumers buy both bottled tea and canned tea, both Nestea and Lipton have much to lose by not having a canned tea offering themselves. And given the price range of canned and bottled tea, it would appear that canned teas serve as the “value” segment to get people to buy a tea product. Bottled tea appears to serve more as a “mid-value” or “premium” segment. Should Nestea & Lipton leave AriZona to own the value tea, it will be much harder to steal that tea customer away at a later point when they are interested in moving up the value chain to premium tea.
As long as you can get them to buy (or try) your drink once, you’ll stand a chance to get them to come by as a repeat customer. Even if the immediate value is $0.99, there could be opportunities to get these thirsty consumers to buy the more expensive bottled tea at a later time.