Coca-Cola, Nestea Venture May Change

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Coca-Cola, Nestea Venture May Change

With Nestea ice teas steadily losing market share in the fast-growing ready-to-drink tea category, Coca-Cola Co. and Nestle are reported to be in talks to restructure their partnership, according to a report by Beverage Digest.

Multiple industry sources said Coke and Nestle are discussing the future of Beverage Partners Worldwide, which markets Nestea iced teas and coffees worldwide.

"As part of our ongoing relationship, we are continuously in discussions with Nestle to look for ways to enhance our partnership and maximize growth opportunities within these important beverage categories," said Crystal Walker, a Coke spokeswoman.

Ready-to-drink teas and coffees account for less than 5 percent of Coke's total global volume. In the U.S., Nestea sales fell 16.4 percent in the first quarter, according to Beverage Digest data. However, sales of all bottled teas were up 28.4 percent during the same period, the industry newsletter said.

Nestea ranks fourth in the iced tea category, which is led by privately-held Arizona Beverage Co.'s Arizona Ice Tea.

Under the current partnership, Coke faces restrictions in introducing coffee and tea products outside of the venture. However, the Atlanta-based beverage company is making moves to broaden its noncarbonated product offerings. For example, the company's North American unit is working with Campbell Soup Co. to bring Godiva Belgian Blends to market next month. The launch, however, is complicated by Coke's inability to call the product a coffee, Morgan Stanley analyst Bill Pecoriello said in a recent research note.

The Nestea partnership also has been slow to move into fast-growing areas of the category such as green and white teas, Pecoriello said. Coke will be restaging the Nestea brand this summer with four new products, including green teas. However, rivals have already brought green tea-based products to market.

The Coke-Nestle partnership also will launch Gold Peak, a premium tea, next month, a Coke spokesman said.

Still, the venture is facing growing pressure. Pecoriello said there are questions about whether Coke and Nestle will go it alone in the U.S. In one potential scenario, Nestle could take back the Nestea rights with Coke introducing its own brands in the U.S., he said in the note. He added that outside the U.S., the venture could continue to operate in its current form.

According to the Beverage Digest report, one source said the ultimate form of the new relationship is still being discussed. These talks could include the role of ready-to-drink coffees. Coke has been unable to create a coffee brand to compete with Starbucks Frappucino and Starbucks DoubleShot, which dominate the category. The Starbucks drinks are marketed by the North American Coffee Partnership, a venture of Starbucks Coffee Co. of Seattle, and PepsiCo Inc. of Purchase, N.Y.

Frustrated by a lack of beverage options in the bottled coffee category, some Coke bottlers have begun exploring ways to enter the segment on their own. Coca-Cola Bottling Co. Consolidated of Charlotte, N.C., has formed a new unit, ByB Brands Inc., to market drinks such as Cinnabon coffee in North America. Cinnabon is currently being sold in Coke Consolidated's territory, but the bottler is looking into distribution deals to market the product nationally.

Separately, Coke Consolidated, which sells Coke products in parts of 11 states in the southeastern U.S., may have purchased another noncarbonated beverage brand from Brain-Twist, according to Beverage Digest. Coke Consolidated has already purchased Cinnabon and Defense, a vitamin- and mineral-supplement drink, from the New York-based company.

Coke Consolidated spokesman Lauren Steele would neither confirm nor deny the report. "We are clearly looking at things," Steele said.

Sources told the newsletter the new brand is called Respect, and would compete with products such as Pepsi's SoBe and Fuze Beverage LLC's Fuze.