When Snapple first appeared in the ready to drink iced tea market in 1988, no one batted an eyelid. Now, only five years later, the small entrepreneurial company’s tremendous success has drawn soft drink giants Coca-Cola and Pepsi into a heated battle fueled by millions of dollars. Media spending in the iced tea market alone is expected to reach $60 million by the end of 1993. The question that remains for Snapple a company only a fraction of the size of its competitors, is whether it needs to alter its strategy to remain competitive in the ready to drink iced tea market.
The ready to drink iced tea market has proved to be an exciting place for a small, entrepreneurial company such as Snapple. In 1988, when Snapple entered the market, it was wide open. Snapple immediately captured a large share of the market – the company currently holds 33 percent by offering a traditional beverage with a new twist: iced tea in 11 different flavors for under $1 per 16-ounce bottle roughly the cost of a bottle of imported beer. With a preservative free, ecological image, Snapple has capitalized on the health consciousness of the 1990s.
Contrasting the ready to drink iced tea market with the more mature soft drink market underscores its appeal. Iced tea is already served in nearly 75 percent of all households in the United States, and the market still appears to be growing. In 1992, the ready to drink iced tea market climbed 50 percent, versus the cola market, which grew only 1 ½ percent.
Competition is intensifying in the ready to drink iced tea market though. Through a 1992 joint venture with Unilever. Pepsi gained a foothold with the Lipton brand. Coca Cola on the other hand has acquired entry through a joint venture with Nestle S A and its Nestea brand. Such competitors introduce distribution and marketing power in terms of resources, finances and magnitude that dwarfs smaller marketers, including Cadbury, Schweppes, and Perrier in addition to Snapple.
Although this may seem alarming to smaller companies, Snapple actually benefits from the increased competition because it promises to expand the market as a whole. And, if the market grows, so could Snapple’s profits. There is no way we can go toe-to-toe with them, acknowledged Chief Operating Officer Arnold Greenberg. But Snapple can leave the expensive advertising and marketing projects to Coca-Cola and Pepsi and ride on their coattails. We may go down in share suggested Greenberg, but it is going to be smaller share of a much bigger market.
This is not to say that Snapple’s path to increased profitability is without challenge. Quite the contrary, numerous obstacles loom ahead. Consumers can make iced tea at home at a much lower cost than what’s being charged for the prepared iced tea offered by Snapple. In addition, Snapple is in only 51 of the 278 major supermarket chains. In order to compete with the upcoming Coca-Cola/Nestea and Pepsi/ Lipton teas, Snapple is going to have to acquire a greater supermarket presence. In order to achieve this, however, Snapple will have to package their iced tea in multiple packs and most probably lower the price, which is something marketers are not willing to do. Another obstacle is Snapple’s inability to successfully break into the vending machine market. Most of the large bottlers that supply vending machines carry close ties to Coca-Cola and Pepsi and are reluctant to give Snapple a chance; Coca-Cola and Pepsi, of course, are not likely to encounter such difficulties is getting their iced teas into the machines. Snapple’s relatively small size only 87 employees and the fact that the company has no production facilities of its own have analysts already speculating that the company will not survive the battle coming with the heavy weights. Lastly and perhaps most importantly is Snapple’s lack of national recognition. Coca-Cola and Pepsi have become almost household terms but is Snapple? The market share increase and growth are more important which can automatically lead to a house hold name. It appears Snapple is more on a stable base for steady expansion and any negatives may result in losing a small percentage of market share and not heavy financial losses. Whereas considering the spend and size of competitors like Pepsi and Coca Cola the negative impacts if any may be substantial.