Unilever, PepsiCo join forces to meet ice tea challenge

Related tags Tea

The world's biggest tea producer and the second-largest soft drink
maker have joined forces in a bid to increase sales of the Lipton
ice tea brand worldwide. Already the market leader, brand owner
Unilever hopes a link-up with PepsiCo will give it further impetus
in both existing and new markets.

Sales of ice tea are growing rapidly across the world, with the drink gradually moving from Japan and the US, where it is already well established, towards the potentially high-consumption markets of Europe.

Global sales of ready-to-drink ice tea are estimated at $23 billion (€19bn), but many of the most important soft drinks markets in Europe in particular still have significant potential for growth.

A recent report from Datamonitor estimated that French annual iced tea consumption rose to 3.2 litres per person in 2002 - a 65 per cent rise on 1997, while the figure in Germany was up by 33 per cent to 6.5 litres. But even these major leaps forward in consumption leave total sales far behind those in markets such as Japan, where per capita consumption of ice tea and coffee is nearer 60 litres per annum.

In a bid to tap this potential, two of the world's leading food and drink producers have joined forces to combine their branding and distribution skills. Unilever​, the Anglo-Dutch consumer goods group whose Lipton Ice brand is perhaps the best known in Europe, has created a new joint venture with PepsiCo​, the US-based group with a long history of soft drink marketing.

The 50-50 JV - Pepsi Lipton International - is the latest move in Unilever's Path to Growth strategy which has mostly involved the disposal of non-core businesses rather than support for existing brands - with the clear exception of a major marketing push for the group's main ice cream brands announced last year.

But with most of the non-core businesses now sold off, Unilever is ready to reinvest some of the cash stockpiled as a result of these disposals in giving greater momentum to its strongest brands.

The joint venture with PepsiCo has two main aims - to move the Lipton brand into new distribution channels and into new markets. Unilever claims that Lipton is already the market leader in the 16 billion litre global RTD tea market, but its presence is slim in a number of key markets, and the link up with PepsiCo is clearly designed to address that concern.

"The JV will target the 'white space' markets where Lipton has no current presence and it is anticipated that significant business opportunities will come from the key high-potential markets where Pepsi is already strong,"​ Unilever said in a statement.

But the soft drink marketing expertise will also help Unilever - which makes everything from ready meals to cosmetics - to build sales of the Lipton brand in markets where it is already present. Several of these will be targeted in the next few months, including Brazil, Spain, Greece, Poland, Czech Republic, Slovakia, Hungary, Albania, Romania, Thailand, Singapore, Vietnam, Australia, Turkey, Egypt, Saudi and the six Gulf States.

The Pepsi Lipton International venture is a logical expansion of an earlier collaboration between the two companies. The Pepsi Lipton Tea Partnership was set up by the two companies some 10 years ago to expand sales in the North American market, and is now firmly established as the leading RTD tea player in both the United States and Canada.

With the aim of achieving a similar level of market dominance in the rest of the world, the latest joint venture will aim to leverage the strengths of both parents. It will principally sell RTD tea concentrate to franchise bottlers for distribution by Pepsi.

As the world's largest tea producer, Unilever will bring the brand, knowledge of the tea industry and a substantial research and development capability to the JV; Pepsi will contribute access to its extensive bottling and distribution network with strong customer relations.

Pepsi Lipton International will be headed by a general manager reporting to a board of directors drawn equally from Unilever Bestfoods and Pepsi.

Lipton is one of Unilever's largest foods brands with sales to the trade well in excess of €2.8 billion and is the world's third largest beverage brand as measured by volume.

Patrick Cescau, director of Unilever Foods, said: "We have a strong presence in the developing and emerging markets yet there is plenty of 'white space' to move into. These markets are the next in our planned rollout and we see Pepsi as the best partner to help us achieve this. This new joint venture marks a truly significant step in the expansion of the brand, bringing it within the reach of many millions of new consumers."

Peter Thompson, president and CEO of PepsiCo Beverages International (PBI), added: "This new alliance will enable Lipton to strengthen its global position. At the same time, we are rounding out our portfolio with a strategic partnership in one of the fastest growing beverage segments and providing consumers with Lipton, the world leader in tea."

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