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Is US RTD Tea Arizona a Multinational Brand in the Making?

Euromonitor International Profile Picture
Euromonitor International Bio

US number one health and wellness RTD tea brand Arizona is actively stretching itself outside its homeland and exploring opportunities abroad. Its recent achievements in some European markets should alert local small start-ups and major players. Private and family-owned business AriZona Beverage Co LLC’s key brand Arizona’s prominent position in world’s HW RTD tea category is underpinned by its healthy, natural formulation and premium positioning. In 2014, the company lost some share in its core US market in the face of strong competition from The Coca-Cola Co (TCCC), PepsiCo/Unilever and Nestlé. In 2014 Arizona maintained its leadership in both US RTD tea and HW RTD tea by retail value, as most of its offerings are associated with health and wellness credentials. Arizona has also expanded into bottled water and juices, as it is looking to diversify in the US soft drinks market. International expansion seems one of its priorities to sustain growth momentum.

Arizona HW RTD Tea Sales by Major Markets, US$ mn RSP, 2014

Arizona HW RTD Tea Sales by Major Markets, US$ mn RSP, 2014
Markets US$ mn 2014
USA 848.9
Germany 24.2
Turkey 10.2
Austria 4.7
Canada 2.7
Greece 0.9
United Kingdom 0.7
Belgium 0.3

Source: Euromonitor International

Global market and global vision

Arizona is expanding in Europe and registers notable shares in HW RTD tea in several markets, including Germany and the UK. It is also found in some Eastern European markets, such as Poland. The progress it has made in Europe shows its international potential amid stiff competition within its domestic market.

In the US there are several small but fast-growing HW RTD teas, including Honest Tea (TCCC), Sweet Leaf Tea (Nestlé), GT’s (Millennium Products Inc) and Pure Leaf (PepsiCo). Honest Tea is now owned by TCCC and is marketed and distributed in the Coca-Cola system. Sales remain small, but it appears to be a promising brand due to its organic credentials. In Latin America, TCCC’s standard version of Fuze has seen significant expansion across many countries in Latin America, South Africa and South Korea. It is considered one of the most promising brands of recent years, and as a vehicle to win young consumers in Latin America. However, HW Fuze Tea registered non-negligible shares only in Mexico and Israel, with its naturally healthy and reduced sugar versions. That said, while opportunities for international growth exist, the competition from TCCC and smaller brands is also strong. Chinese brand Wong Lot Kat has tentatively started exploring foreign markets such as the UK, and the brand is sold in mainstream supermarket Tesco, although sales remain limited so far. Arizona does not seem to have distribution and logistical muscle to achieve economies of scale like Fuze.

Distribution the usual challenge

Arizona’s website increasingly strives to look “international” and “global”, with fully operated country-specific sites for several major markets including Germany, France and the Netherlands. Africa, Asia and South Pacific are also listed as intended targeted regions, however the region-specific sites are under construction. All signs indicate that the company is perhaps looking for national or regional distributors to achieve product exposure. As well as the appealing marketable message as to “all natural ingredients of the highest quality with no artificial flavours, no colours and no preservatives”, the company also emphasises its small, family-owned and independent nature, hence, with entrepreneur spirit and being quick in responding to consumer demand. This was effective enough when they first started a business; but, it may not work well when they try to enter a new market. Nevertheless, if it wishes to build a global operation, it should consider modifying its mindset and perhaps consider looking for meaningful distribution deals with regional players. If the company’s aspiration is evolving, its business approach may be worth changing as well. Joint ventures and collaborations should all be considered. There is an interesting observation or perception in the health and wellness environment that fast-growing start-ups should avoid being associated with large corporations and firms, as if such giants represent the “big bad wolf”. The fact is that large food and beverage companies are also looking for alternative and healthy products for growth and have the resources to nurture and grow a brand.

The challenge for “newish” brands in any competitive market is the slotting fees demanded by retailers and the unwillingness of distributors and retailers to carry the new drinks, as the quantity of the order is normally small and distributors might not want to take the risk. At the moment, in the UK a company called American Drinks appears to be Arizona’s distributor; in New Zealand it is sold online by an e-commerce player called Best Beverage Company. So, for the sake of discussion, a distribution deal with a strong local player such as Orangina Schweppes (parent company Suntory) can be considered for expansion in Europe as Orangina has vast contacts across Europe and North Africa.

In summary, the nature of the Arizona product, its marketability and packaging show that it can be a viable brand in Europe and other developed markets. As its growth in the US is slowing and its European adventure has started, the manufacturer is at an important juncture to make strategic decisions regarding how to sustain the brand and make it stand out among all the other emerging RTD brands.

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