‘Coke didn’t treat Nestea like tea!’ Nestle Waters boss suggests soda giant had half-hearted approach

Nestea's 2014 packaging for the Canadian market

Nestle Waters USA CEO Tim Brown says he doesn’t think Coke ‘had a lot of heart’ for RTD tea brand Nestea in the US and suggests it blundered by treating it as a soft drink line extension.

Euromonitor senior beverages analyst Hope Lee wrote in a company blog post Monday that despite Nestea’s global status, “it appears to be a neglected brand, lost in Nestle’s vast portfolio”.

The brand was withdrawn from China in May this year and was subject to a further US sales decline in 2013 – where it faces tough competition from Lipton and Arizona.

Although Nestle took back production and distribution from Coca-Cola this year, Lee warned that “when an FMCG brand does not shine in both the US and China, it is at risk of losing its important to its parent company”.

“From an overall soft drinks perspective, Nestle has no specific plan as to how to revitalise Nestea although its Nestea Zero variant appears to be doing well in Canada, its largest market,” she said.

‘We can compete aggressively against Coke and Pepsi’

However, at a June 4 investor seminar not previously reported, Nestle Waters USA boss Tim Brown (below) described tea as a form of flavored water and insisted: “Tea is our great opportunity in flavored water”.

“The first thing we’re going to do that Coke didn’t do is treat Nestea like tea,” he said. “Coke managed Nestea as a line extension of soft drinks. And if you look at the taste profiles, calories, etc., it really wasn’t much of a tea drink."

“We reformulated this year and took 40% of the calories out, and we have taste preference of 70:30 versus our closest competitor. We’ve also changed the packaging, graphics, and advertising,” Brown added.

“Traditionally, as we drove water against both Coke and Pepsi, we think we can bring tea with our route to market and compete aggressively against them. I don’t think that Coke in the US had a lot of heart for the brand, and the results showed in the past few years. We’re going to put a lot into it and we’re very optimistic.”

Brown said Nestle was seeing “extremely strong growth in Nestea this year” and has big plans to grow it in the future, "given the brands synergies with its system from a production and route to market standpoint”.

Nestle H1 2014 results see profits down

More broadly, Brown said Nestle Waters plans to premiumise its high volume, low-margin waters business, building a single-serve portfolio with RTD teas (Nestea), sparkling fruit beverages (Poland Spring) and imported waters (San Pellegrino, Perrier).

Today the world’s largest food company reported sales of CHF 42.981bn ($47.33bn) up 4.7% in organic terms, but net profit fell from CHF 5.1bn to CHF 4.6bn. CEO Paul Bulcke hailed “solid, broad-based organic growth and pricing in what is still a very volatile pricing environment”.

Nestle reported sales of CHF €3.7bn for Nestle Waters business alone with 6.1% organic growth and a 10.4% operating profit margin (+0.8%) due to ‘leveraging growth’ and cost cuts.

No.1 global bottled water brand Nestle Pure Life drove growth in emerging markets such as China, Egypt, Turkey and Pakistan, while in developed markets regional brands grew – Levissima in Italy, Buxton in the UK, Hepar in France and US mega brand Poland Spring and Deer Park in the US.

“Specifically in North America we saw an acceleration of our growth versus last year – it was driven mainly by strong volume across US retail thanks to our regional spring waters and our international brands Perrier and San Pellegrino,” Nestle CFO Wan Ling Martello told analysts this morning.

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