ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, October 8, 1996 TAG: 9610080072
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: CHICAGO
SOURCE: Associated Press
THE BEVERAGE LINE has been called an "abject failure," leaving Quaker Oats scrambling for a new strategy to save the maker of bottled fruit drinks and tea.
They came, they drank, they didn't buy.
Quaker Oats Co. spent $20 million this summer on a campaign giving away millions of bottles of its ailing Snapple fruit-juice and iced-tea line in hopes consumers would then turn around and buy millions more in the stores.
It didn't work, preliminary market data shows.
The Chicago-based food-and-beverage maker now has some tough choices to make as it works to stem an increasing tide of shareholder discontent.
``To state the very obvious, Snapple has been an abject failure,'' analyst Michael Mouboussin at CS First Boston said Monday. ``It boils down to two things for Quaker to do now: Sell the business outright or attempt to run it next year with a vastly altered strategy.''
Quaker Chairman William Smithburg has been struggling for the past year to turn Snapple's fortunes around amid a series of top executive departures, flopped advertising campaigns and poor sales. In July, he announced the giveaway campaign to learn where the so-called new age beverage is liked best and to entice consumers into buying.
But instead of gaining share, Snapple lost it during the important summer selling months, according to data on sales in supermarkets by A.C. Nielsen Marketing Research.
Snapple tea sales fell a sharp 14 percent, with market share falling 2.5 percentage points to 21.4 percent. Market share for juices fell 1.1 percent percentage points to 7.3 percent, Nielsen reported. The market share decline was first reported in Monday editions of Crain's Chicago Business.
Several other beverage makers also fared poorly this summer, particularly in the Northeast where cool and rainy weather dampened sales.
But Snapple's losses were above the industry average. Juice sales for the industry fell 5 percent this summer, while tea drinks fell 4 percent.
Quaker spokesman Ron Bottrell called reports of the dismal summer sales ``speculation'' because about half the beverage line's sales come from such hard-to-quantify outlets as delicatessens and sandwich shops. The company will not release information on Snapple until its third-quarter earnings report on Oct. 24, he said.
Smithburg during an analysts' teleconference call in July said the company is ``intensely reviewing'' options to revive the line, which has lost more than $100 million so far this year. His comments have led to speculation Quaker is considering selling the division, which it purchased for a whopping $1.7 billion in late 1994, or spinning it off to shareholders with its top-selling Gatorade sports drink.
Quaker has had trouble distributing and marketing Snapple. To complicate matters, the important middle section of the country just doesn't embrace Snapple drinks with names like Mango Madness and Kiwi Strawberry Cocktail.
``It appeals much more to the urban yuppies of New York and the West Coast than to middle America,'' said analyst Nomi Ghez at Goldman Sachs. ``It's relatively expensive and the tastes don't appeal to a large audience. How many people want to drink kiwi-banana-strawberry whatever?''
Smithburg in August suggested the company might make Snapple a regional drink - selling it on the Northeast and West Coast, where it does well.
Whatever decision Smithburg makes, analysts say he must do it soon to avoid his own ouster or a hostile takeover bid for Quaker.
Quaker's share rose 12.5 cents Monday to $36.50 on the New York Stock Exchange.
LENGTH: Medium: 70 linesby CNB