How Fuze Became a Billion Dollar Brand

Coca-Cola's Fuze tea joins the company's growing roster of billion dollar brands.  Fuze surpassed a billion dollar in annual sales in 2014.  Image courtesy of coca-colacompany.com.
Coca-Cola’s Fuze tea joins the company’s growing roster of billion dollar brands. Fuze surpassed a billion dollar in annual sales in 2014. Image courtesy of coca-colacompany.com.

Per Coca-Cola’s news release a couple weeks back, the soda giant’s Fuze brand has joined the company’s billion dollar club this year (story here).  Fuze expanded into teas back in 2012 and surpassed one billion dollars in annual sales just two years later, which may make it one of the fastest brands under Coca-Cola’s stewardship to achieve this milestone. Regardless of their geographical footprint (40 markets and growing) or product assortment (30+ Fuze skus between juice, tea, and liquid enhancer flavors), reaching one billion dollars this quickly is surprising.  A key question to answer may be what happened in the past two years to help Fuze become one Coca-Cola’s roster of 20 billion dollar brands.

In 2007, Coca-Cola bought Fuze and promptly brought the juice brand into their beverage roster.  At that time, Fuze existed as a primary competitor to SoBe’s line of fruit juices owned by Pepsi.  The importance of tea in the brand’s portfolio emerged in 2009 when Fuze tea was part of the fountain drink options in Subway’s sandwich franchise restaurants.  Since then, the hydration brand has emphasized tea more than juices.  Securing distribution in Subway was a critical step toward Fuze’s current status.  Not only were they earning sales across Subway locations, their availability increased consumer exposure to Fuze as a ready-to-drink tea and a viable alternative to Coca-Cola’s soda offerings.  Even Samir Bhutada, Coke’s global director of tea and ready-to-drink coffee, mentioned that part of Fuze’s popularity was related to beverage trends around the ready-to-drink tea category because it delivers on great testing refreshment and natural goodness.

Another important step in Fuze’s history came in 2012, when Coca-Cola and Nestle Waters amended their Beverage Partners Worldwide distribution arrangement.  Save for Canada and a few other geographies, Nestle Waters would retain distribution rights for Nestea.  This in turn allowed Coca-Cola to redeploy efforts to their own stable of healthy refreshments.  Gold Peak and Fuze became the main benefactors of the company’s increased support.  This support materialized in both marketing and trade support.  With Nestea returning to Nestle Waters’ distribution network, this opened up more space for other beverages to grow their footprint within Coca-Cola’s distribution network.  As a result of this, Fuze cultivated a stronger international presence.

Coca-Cola Canada's Fuze Tea Drops: Green Tea Mango, Peach, and Raspberry.
Coca-Cola Canada’s Fuze Tea Drops: Green Tea Mango, Peach, and Raspberry.

The Coca-Cola system also support the brand by cranking out drink flavors built on its foundation of green tea and black tea.  With over 30 Fuze tea variants, consumers looking for tea options would not have any trouble picking a tea under the Fuze portfolio.  Most recently, Coca-Cola has extended the Fuze brand beyond bottled juices and teas.  Coca-Cola launched Fuze Tea Drops in the Canadian marketplace, building more momentum behind this brand with three flavors of liquid enhancers.  To support this rollout, the company activated Fuze Tea Drops with in-store signage and branded merchandising racks across participating Canadian retailers.  It’s also telling that Fuze was one of the select brands among Coca-Cola’s liquid enhancer portfolio, joining Dasani, Powerade, and Minute Maid as beverages available in this format.

In Canada, Nestea is still being distributed by Coca-Cola so Fuze tea may be limited in its availability.  Most Canadians only experience Fuze as a bottled juice unless they choose the brand where Coca-Cola Freestyle machines are available or purchase Subway sandwiches.  With Fuze tea drops, Canadians are one step closer toward experiencing Fuze the way other consumers get to enjoy it.  If Fuze tea drops sell well and Freestyle machines back up the brand’s popularity, there may be finally be Fuze tea coming to Canada.  At that time, Canadians will join other countries that further contribute to Fuze’s annual sales of a billion dollars.

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evian Replaces Coca-Cola With Red Bull

Courtesy of designtaxi.com
Courtesy of designtaxi.com

It appears that Coca-Cola and evian have both outgrown their distribution partnership.  Come July 2014, Coca-Cola will stop distributing evian waters (read the full story here).  Consequently around that same time, some U.S. cities may see evian being distributed off Red Bull delivery trucks (that story found here).  While Coca-Cola & evian describe the agreement’s termination as an opportunity to refocus on their core businesses, it may simply be Coca-Cola wanting to re-focus on their own water brand as smartwater continues to build sales.  With this adjusted partnership, who wins and who loses?  Coca-Cola, evian, or Red Bull?

It would seem that Coca-Cola is constantly looking at ways to ensure delivery truck space is stocked with as much Coca-Cola-owned refreshments as possible.  Coca-Cola appears to be re-evaluating all their distribution agreements in order to locate new growth opportunities.  It was only two years ago in 2012 that Coca-Cola ended a distribution agreement with Nestea to focus their attention on Fuze – which so far has left consumers upset since Nestea is not as broadly available.  Fuze also appears to have failed to expectations given consumers still prefer Nestea.  Has Coca-Cola been supporting Fuze with the appropriate level of marketing?  This indicates that while in-house products (Fuze, smartwater) may offer better profit margins, licensed products (Nestea, evian) may perform better given a stronger sales record (that was built with Coca-Cola’s distribution network).  Will Coca-Cola look to remove Monster Energy from their distribution infrastructure as well?  While smartwater may have stronger sales than Fuze, the question remains whether smartwater will be able to outperform evian.  If smartwater outsells evian, then Coca-Cola would have benefited from the distribution change-up.  The same logic would apply for all other products that Coca-Cola distributes.

For evian, this change comes at a time when the company is in the midst of introducing new product packaging.  The fact that the premium water brand needs to revitalize their packaging to stay competitive is disheartening.  This is a sign that evian must re-align some aspects of their product (this time it’s the packaging) in order to re-communicate the product benefits to the consumers.  With distribution changes occurring simultaneously, the impact is amplified and more detrimental. Consumers looking to repurchase evian waters may find fewer selection in addition to not recognizing the 14-year-old evian plastic bottle.  Retailers may be less confident in evian, observing so much change in such a short time.  However, Red Bull is a strong partner and is building up their own distribution network.  With the partnership agreement ending in July 2014, this still gives evian a little time to build more infrastructure to replace Coca-Cola’s footprint.  evian appears to be disadvantaged in this new arrangement, given the fragmented nature of their distribution system.  Even if evian could establish the same footprint as before, they still must compete against smartwater for shelf space given the opposite sales trends of these two premium water brands.  Still, evian is part of The Danone Group and would be able to leverage the strength of their yogurt distribution network.  Possibly weaker distribution, but evian should be none the worse off.

Courtesy of asiantrader.biz
Courtesy of asiantrader.biz

For Red Bull, this is an opportunity for them to improve their business through new opportunities.  While their innovation track record outside of energy drinks has been poor, the sales of their energy drinks has been steady and growing.  The fact that the energy drink manufacturer has returned to their roots among product innovation, they have also been creative to find new revenue-growing opportunities.  This is where distribution becomes that great growth opportunity.  As they deliver energy drinks to their retail customers, they can now satisfy more of the retailer’s beverage needs by bringing them evian as well.  While evian is the first manufacturer to explore product delivery through Red Bull, there are other product manufacturers that may leverage Red Bull’s distribution infrastructure in the future.  If Red Bull can expertly manage the evian distribution relationship and help the premium water brand regain sales momentum, then Red Bull stands to have many other growth opportunities in the future.

It would appear that Red Bull and Coca-Cola have more upside than evian in this new arrangement, but upside nonetheless.  It would also be important for other beverage manufacturers to take notice of what is happening here.  Would evian be better off approaching Pepsi to see if they can leverage a partnership with them?  And if you’re Monster Energy, this offers short term gains with more truck space.  Question is, will Coca-Cola one day end their distribution agreement to focus on Nos and other Coca-Cola owned energy drinks?

Coca-Cola Expands “Official” Olympic Drink Portfolio

Courtesy of eprize.com

It’s another year for the Olympic games, this time in Sochi.  For Coca-Cola, every Olympic year is a boon based on the event partnership agreement where they hold the distinction of official Olympic non-alcoholic beverage partner.  As one of the Olympics’ global partners, the beverage giant pays about $100M to monopolize non-alcoholic beverage serving rights in all Olympic venues (other global partners hold exclusivity in their respective industries).  In recent years, the definition of “non-alcoholic beverage” has expanded to include more than just carbonated soft drinks.  Coca-Cola has gained exclusivity to serve sports drinks (Powerade), juices (Minute Maid), and waters (Dasani, vitaminwater) over the past few Olympics games.  The “Olympic Wolrdwide Partner” logo has also started appearing on Coca-Cola’s ZICO coconut water brand lately.  So given the substantial cost, how beneficial is it for Coca-Cola to be a worldwide Olympic partner?  And with the expanded definition of “non-alcoholic beverage”, which product categories are next to gain Official Olympic product status?

Despite a cost of $100M each active Olympic year, Coca-Cola has renewed their Olympic partnership until 2020.  It would appear that this agreement delivers substantive returns.  For one, Coca-Cola has blocked out their global competitor in all product categories that the conglomerate participates in.  No Pepsi-branded soft drinks, Aquafina, Gatorade, or Tropicana can be served within all Olympic-event venues.  Brand visibility is another partnership benefit.  Every game or after-party event that becomes broadcasted will feature a Coca-Cola logo or Coca-Cola beverage product.  Live viewers and spectators may only celebrate with Coca-Cola branded products and nothing else.  Positive associations is another partnership benefit.  Spectators seeing their athletes win also see them hydrating themselves with Coca-Cola products.  These same spectators will associate hard work, performance, and winning all being supported by Coca-Cola.  From a qualitative perspective, these are invaluable benefits that Coca-Cola has been able to enjoy – reduced competition, brand visibility, and positive associations.

Courtesy of designyoutrust.com

With changing taste preferences among spectators and athletes alike, incorporating other product categories as “Official Drinks” certainly makes sense.  Some people will choose carbonated soft drinks, some will want flavored water, and still some people prefer juices.  With coconut water emerging as a beverage category, expansion to include this as an Olympic-approved beverage makes sense.  However, increased exposure of Olympic branding potentially cheapens the Olympic brand with broader availability on all products – not just beverages.  Furthermore, not all products will be suitable to display the Olympic logo on its packaging.  For example, energy drinks may be one category that could be denied Official Olympic product status given possible negative associations despite the category growth.  Within Coca-Cola beverage portfolio, it’s likely that liquid enhancers (Dasani Drops, Powerade Drops) and teas (Honest Tea, Fuze) could gain approval should they apply for it.  Both these categories are enjoying growth and have fewer negative associations portrayed by the media.

Coca-Cola has been one of many key sponsors that has supported the Olympic games through the years, and it appears that both parties are satisfied with the results.  2020 is still three more Olympic games away, but given the goodwill both parties have been generated, it’s very possible that this relationship goes well beyond 2020.

Fuze Beverages: Now with Fewer Calories

Fuze lineup - courtesy of foodbizdaily.com

It looks like “down-counting” has struck another product in the beverage industry.  Fuze, the juice & tea beverage brand manufactured by Coca-Cola has reduced the liquid amount inside each bottle in addition to shrinking the bottle.  The price remains unchanged yet there’s less liquid per bottle (8.5% fewer to be exact).  There are also fewer calories in the new line-up, with 180 calories for Fuze, and only 20 calories for the Fuze Shape line of juices .  What are some possible reasons behind the size and calorie reduction?  Did people find that 547ml was just too much, whereas 500ml would be just the right size?

From a business perspective, this is not an uncommon move to save on product and packaging costs.  Previous examples like the 591ml soft drinks and plain water, the 341ml non-carbonated  beverages, and the 444ml premium energy drinks suggest that there is a minimal impact on business when size is only reduced slightly.  And while there is no research to indicate that 547ml is an inefficient serving size, I suspect that this adjustment was motivated by calorie reduction in each serving.  Fuze 500ml calories - courtesy of drinkfuze.caThere were over 200 calories in each serving for the regular line of Fuze drinks when it was 547ml, while there are only 180 calories in each serving of the new Fuze drinks.    This amounts to roughly a 15% calorie reduction.  While consumers may not notice the smaller bottle, they may certainly notice the reduced calorie content – at least notice that there are less than 200 calories per serving.  And 200 calories may be an artificial “calorie threshold” in the minds of health-conscious consumers, so this a subtle way to attract health-conscious consumers more than the cost savings of a smaller bottle and less liquid.

From a consumer perspective, the calorie reduction appears to be beneficial at first glance.  The end users typically rely on manufacturers to tell them what are appropriate serving sizes, and the nutritional value associated with these sizes.  Since the new line-up features less calories, there is one less thing for the user to worry about.  On the other hand, the smaller serving sizes are still marketed at the old price point, so there may be some negative interpretation that this is just a business decision to increase corporate profitability.

In any case, both parties stands to benefit from this change.  Fuze may make more money, but it’s still dependent on how the consumers react and whether this adjustment translates to identical or greater sales.

The Fate of Nestea and FUZE in the Tea Category

Nestea

Most readers that also follow the beverage industry or the BevWire twitter feed know that Coca-Cola and Nestle Waters have altered their distribution agreement, with Nestea to be distributed by Nestle Waters after the end of 2012 (source article here).  The article goes on to state that Coca-Cola will focus on increasing the visibility for their own line of teas, such as FUZE, Honest Tea, Gold Peak, and Peace Tea.  How will this play out for the two beverage giants, Coca-Cola and Nestle?

Nestle Waters – a spinoff from the Nestle S.A. – originally bottled and distributed water exclusively, but has recently began to extend their offerings with a tea acquisition.  Bringing Nestea back into the fold for them now gives them a much stronger and balance tea portfolio.  Nestea will serve the value and price-conscious end of the tea spectrum, while Sweet Leaf Tea and Tradewinds cater to consumers at the organic and premium end of the spectrum.  Nestea itself is also popular and likely ranks as one of the larger tea brands in North America (other major players in a oligopolis category being Lipton, AriZona, Snapple).  Nestea may very perform better under new ownership, since its exclusive business operations are waters and teas. It may likely benefit with higher marketing budgets as they now become a key brand among some lesser known brands, and competes with fewer brands for funding.  Business customers like Wal-Mart, CVS, and other supermarkets are not likely to be too affected since they already stock Nestle Waters products, so Nestea will now be brought to them by the same trucks that the Nestle Waters products come off of.  Consumers may not even notice any difference, because the product is essentially the same as taste and packaging stay the same.

How about for Coca-Cola, how does this distribution partnership affect them?  With Nestea no longer coming off their delivery trucks, the company’s focus is to grow FUZE first and foremost.  Honest Tea, Gold Peak, and Peace Tea will also benefit from increased attention.  However, although FUZE stands to have the most opportunity to make a name for itself in the tea category, the brand is somewhat struggling currently.  FUZE is currently known for its juice offerings (except for Subway where it is already available as a fountain tea beverage) but struggling to fully differentiate itself among other competitors.  With the exception of FUZE’s Slenderize juice line (low-calorie benefit), FUZE’s other offerings are not easily connecting with consumers as a vitamin-enhanced juice.  Consumers currently see the FUZE line as just another emerging juice product that blends together unique fruits (peaches with mangos, bananas with coconuts, etc).

Fuze lineup - courtesy of foodbizdaily.com

Coca-Cola’s first order of business is to ensure that consumers understand the value proposition and benefits of the FUZE.  And because the company now understands that FUZE will represent both juices and teas, their positioning and c0mmunication will be markedly different from what it was before – simply raising the profile will not be enough.  The key message can no longer be about vitamin-enhanced juices, but either vitamin-enhanced juices and teas  or simply vitamin-enhanced products.  In that vein, it will be interesting to see what type of advertising message FUZE will come up with.

Another key area of concern may be the pricing strategy for FUZE.  Nestea exists as a value player in tea, while FUZE is a premium-priced juice offering.  If FUZE were to replace Nestea as Coca-Cola’s value tea offering, FUZE will have to adjust its pricing strategy to enter as a value competitor.  Is that in itself a good strategy?  As a company, do you want to trade down from a premium offering (higher margin product) to sell incremental bottles but make significantly lower margins?

Although Nestea will not be officially transitioned to Nestle Waters until 2013, there is a lot of preparation for both companies to do.  Coca-Cola will have to maintain its efforts on Nestea in North America, but be mindful that by 2013 Nestea will be a product that competes against their own tea offerings.  They also cannot legitimately stop their efforts on promoting Nestea since Coca-Cola still holds distribution rights for Nestea elsewhere in the world (Europe, Asia, etc).  At the same time, Coca-Cola must be working hard to raise FUZE’s profile as well as their other offerings to cover for the loss of Nestea.  On Nestle’s part, they must prepare for taking on a large tea brand and look for opportunities to increase Nestea’s market position.

There’s no word on whether how much of this will affect Canada, but since Canada’s market is closely affiliated to the American market, there is likely to be some impact.  Keep an eye out for these changes when Nestea changes hands.

Fuze Beverages to Release Two New Flavors in Canada

Fuze Beverages will be releasing two new flavors under its Shape line of beverages in Canada.  The Fuze Shape line currently has Strawberry Melon and Tropical Punch, and will soon add Blueberry Raspberry and Cranberry Raspberry to the line-up (see left – the image is from the Slenderize line-up in the United States but will be re-positioned to the Shape line-up for Canada).

The Fuze Shape beverages seem to be popular among Canadians, and therefore expanding the product line makes sense.  With consumers being more and more health-conscious, these new products makes a strong case for success.

At the same time, the Fuze Green Tea and Fuze Vitalize Blackberry Grape flavors are being phased out of the Canadian product portfolio.  Fuze Green Tea entered at the time when there were a lot of other green tea options in the Canadian multicultural marketplace, and therefore contributed to its failure.  Fuze Vitalize Blackberry Grape never caught on as a popular flavor and therefore is being phased out.  It seems like while the Shape line-up is popular, other line-ups don’t share the same success.  Some of you might remember that Fuze Vitalize Fruit Punch was around before, but that flavor was discontinued.  The same goes for Fuze Refresh Strawberry Guava.  It seems as though the Vitalize line-up is not succeeding, and the Refresh line-up is barely staying alive.

While the discontinued flavors may not have tasted well, they may not have been given a fair chance to succeed either.  Fuze’s packaging for their Shape line-up looks upbeat, young and hip, whereas the Refresh line-up looks refreshing (no pun intended), but the Vitalize line-up looks plain boring.  Thus it may not come as a surprise that two of the Vitalize flavors are now out of the marketplace, and Orange Mango may soon follow.

The discontinued flavors may make a comeback (at the very least the Strawberry Guava flavor did do well in the market), but not any time soon.  However, if it were to succeed, it will definitely need to have updated packaging to attract the consumer’s attention again.