Nestle, Coke Agree To Compete In U.S., Japanese Markets

by Nina Lentini, Mar 28, 2007, 5:00 AM

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Nestle and Coca-Cola have refined an earlier agreement that refocuses the marketing plans of their Beverage Partners Worldwide (BPW) agreement, clearing the way in the crucial American and Japanese markets for the two companies to market black tea - which accounts for about 78% of the $941 million global tea market -- independently.

BPW will cover the total ready-to-drink tea category worldwide except in the U.S. and Japan. Nestlé has licensed its Nestea and Enviga brands to Coke in the U.S. and to BPW for the rest of the world. Both companies will now be free to develop or acquire additional tea brands to compete on the U.S. and Japanese markets, leaving BPW free to do the same in the rest of the world, the companies said in a press release.

Coke has already re-approached Arizona iced tea about a deal, reports Gerry Khermouch, editor of Beverage Business Insights. "This was always tougher with Nestle involved since the heart of Arizona's business is black tea, but now it's considerably more straightforward."

Nescafé ready-to-drink coffee will be returned to Nestlé, and both Nestlé and Coke will be free to compete in coffee beverages and non-tea functional beverages worldwide, the agreement says. Nestlé enjoys strong growth with its Nespresso. Coke has broken into the food service sector with Far Coast Coffee, targeting specialty coffee consumers at hotels and restaurants. Coke also has a "low end" coffee designed for convenience stores and theaters called Chaqwa, which includes only one flavor each of coffee and tea.

Khermouch also sees the revised agreement as reflective of Coke's desire to bring Arizona into the family following bottler Coca-Cola Enterprises' move to distribute Arizona. "Coke would like to definitely quash jailbreaks like that," he says. "Its recent acquisition of Fuze, which does a bunch of white and green teas, shows that Coke would rather go out and buy accepted consumer brands rather than try to work that tired Nescafe brand any longer."

BBW, a 50-50 JV held by Nestlé and Coke, was created in 2001 following a decade during which the companies cooperated in a joint venture called Coca-Cola and Nestlé Refreshments.

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