Mergers unleash flow of mass distribution; marketing muscle gives beverages significant presence at discount - Food Merchandising

Discount Store News, Feb 20, 1995

Marketing muscle gives beverages significant presence at discount

The purchase of Snapple Beverage Co. by Quaker Oats Co. has everyone in the beverage business wondering what the merger's impact will be on the $5 billion fruit juice, juice drink, tea and water category.

Snapple grew out of a small niche market business to challenge some of the country's largest beverage firms. Many even imitated Snapple in order to stop customers from switching to the upstart brand.

"It was time to bring Snapple to more of the world!," quipped Wendy Kaufmann, the Snapple lady.

A few months after the October deal between Snapple and Quaker Oats, Seagram announced plans to buy Dole's juice business for $285 million, fueling more inquiries into how the beverage business will shake out.

The question is extremely important for drug and discount store retailers that have less space than supermarkets and convenience stores to stock juice. That means they have to select the best brands for their limited presentations.

In fact, winning shelf space in locations such as drug and discount stores is one of the reasons for the merger mania.

"Everyone is looking for new distribution channels ... and it's easier to buy it than to build it," explained Tom Pirko, president of New York consulting firm BevMark Inc.

A prime example is Quaker Oats, which already has good distribution with Gatorade in supermarkets. That will make the doors easier to swing open for Snapple, experts said.

"It makes a lot of sense to combine strong brands," said David Stone, an industry consultant with the New England Consulting Group, Westport, Conn. "The advantage of, for example, Quaker and Snapple, is that Quaker can bring mass marketing capability to Snapple, move in into distribution channels where it [Quaker] is strong, and make the company overall a more compelling competitor."

The urge to merge is driven in part by consumers, who are voting with their palettes in favor of new juice, juice drink, iced tea and water combinations, which they perceive as healthier than most carbonated beverages. Increasingly, consumers are experimenting with new noncarbonated juice and juice drink flavors.

"One of the most interesting things that has emerged since last fall is that there's been a real slow-down in the growth rate of teas and an acceleration of sales of fruit-based drinks, particularly juices that are lighter, chuggable, easier to drink," said Steven Rowse, vice president of marketing, Veryfine Products. Veryfine has reacted with new products aimed at that market.

Retailers think firms like Veryfine and Tropicana will grab more attention as other beverage firms merge. The thinking in the industry is that although now Snapple will have more marketing muscle behind it, the brand may not be as fast to react to trends now that it is part of a larger firm. For some other brands, that's a competitive advantage.

No matter what brands grow to dominate, continued consumer interest in juices and juice drinks combined with the marketing muscle of larger manufacturers could make it easier for discount and drugstore retailers to build a significant presence in the juice category.

According to research conducted by A.C. Nielsen, grocery stores' share of juice and blended juice drinks volume is beginning to show a slow decline, while warehouse clubs' share continues to grow slowly but steadily.

Grocery stores in 1992 commanded 87.7% of the shelf-stable juice and drink volume, but that share slipped to 86.3% in 1993. Mass merchandisers accounted for 4.1% of category unit sales; warehouse clubs share grew to 5.7% from 4.4%, while drugstores held on to a 0.8% share of unit sales. During the same time period, the percent of households purchasing shelf-stable juices and juice drinks through all distribution channels grew to 94.4% from 93%, A.C. Nielsen reported.

While the grocery channel remains the leader in purchase occasions at 9.8, warehouse clubs continue to lead in volume per occasion at 8.1 qts. This is more than double the amount for grocery and mass merchandisers, Nielsen reported.

Coca-cola, which owns Minute Maid and Hi-C juices, commands a 19.5% share of sales in the fruit beverage category. Seagram, with a combination of Tropicana and Dole, will hold 15.6%; PepsiCo., which has a distribution agreement with Ocean Spray, has a 10% share of the category; Procter & Gamble, marketer of Hawaiian Punch and Sunny Delight, holds a 5.5% share; Welch's, 3.8%. An additional 45.6% of the market is divided up among smaller competitors, including Del Monte, Tree Top, Cadbury Schweppes' Mott's, Apple and Eve, Veryfine and Everfresh Beverage Co., according to Beverage Marketing Corp., a New York consulting firm.

"What consumers want are more choices, more variety and more availability," said Michael Bellas, president of Beverage Marketing Corp. "Long term, getting juices into more retail outlets is simply going to make it easier for consumers to buy it."

Peter Vitulli, chairman, ceo and president of Everfresh added, "The growth potential is there and it will be there for several more years. The biggest challenge is to get distribution because where we get distribution, we do really well."