Harvard Business School 9-599-126

Harvard Business School 9-599-126

Rev. October 13, 1999

You remember the '80s, Philip? - Of course.

God hated the '80s.

- He didn't like anything? He liked Snapple.

- God liked Snapple?

Not all the flavors.

From a 1998 episode of Chicago Hope, a network television drama.

Arnie Greenberg, Leonard Marsh and Hyman Golden had been friends since high school. In 1972, they went into business selling all-natural apple juice to health food stores in Greenwich Village under the brand name Snapple. By the late 1980s, their brand had achieved near-cult status on both coasts of the United States, with its iced teas particularly in demand. It had taken 15 years, they said, to become an overnight success.

In 1994 Quaker bought Snapple for $1.7 billion. The vision had been to combine Snapple with Gatorade, an earlier and very successful acquisition, to form a powerful beverage business unit. Snapple, however, did not thrive: sales fell in each of the next four years, and in 1997 Quaker despaired and sold the brand to Triarc Beverages for $300 million. In the fallout that followed, both Quaker's chairman of sixteen years and its president resigned.

Mike Weinstein, CEO of Triarc Beverage Group, reflected on the acquisition. "At $300 million, Snapple is not a steal by any means. It's in decline, and when that happens to a brand it's seldom that it comes back. We're in a fashion business here, and when your imagery isn't fashionable often that's the end. But we've talked to a lot of consumers and we did a lot of qualitative research, and we've decided that in this case the brand still has inherent strength. People

feel good about it. It will respond to the right marketing stuff."

Professor John Deighton prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

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599-126 Snapple

1972-1986: The Origins of the Brand

Arnie Greenberg's family ran a sardine and pickle store in Ridgewood in Queens, NY. His friends Leonard Marsh and Hyman Golden helped him in the store, and in turn he helped them to manage their window-washing business. In the climate of the 1960s, Arnie encouraged the family to stock health foods. The three saw the popularity of natural no-preservative fruit juices in the store, and teamed up with a California-based juice company to manufacture and distribute a bottled apple drink. Eventually they broke away from the Californian partner and founded their own company,

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Unadulterated Food Products, and the Snapple brand. "100% Natural" became Snapple's mantra.

The business grew slowly using internally generated funds. It outsourced production and product development, and built a network of distributors across New York City. Where possible, it

sought individual distributors working for their own account, and found as a result that the business needed to broaden the product line to keep distributors occupied. It added carbonated drinks, fruit flavored iced teas, diet juices, seltzers, an isotonic sports drink and even a Vitamin Supreme. Some succeeded and many failed, but premium pricing on the successful products covered losses on the failures. Revenues and profits grew with expansion of distribution into New Jersey and Pennsylvania. In 1984 annual turnover was $4 million and it doubled by 1986 to $8 million.

In response to pleas from Snapple's distributors, the founders commissioned advertising. Jonathan Bond and Richard Kirshenbaum, who managed the Snapple account later, described this

early advertising as follows:

When tennis star Ivan Lendl was featured in several ads, the idea didn't quite come off. (He) kept mispronouncing the name as "Shnapple." Luckily the ads were so bad that they didn't do the brand any harm. Had those schlocky ads been just a little better, they actually would have been worse for Snapple. The ineptness of

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the ads actually came off as charming, just like the cluttered packaging.

Snapple was just one of many small beverage brands aspiring to appeal to young, health-

conscious urban professionals in the 1980s. Napa Naturals, Natural Quencher, SoHo, After the Fall, Ginseng Rush, Elliot's Amazing, Old Tyme Soft Drink, Manly Sodas, Syfo and Original New York Seltzer were some of the many contenders in what eventually came to be called the New Age or Alternative beverage category.

1987-1993: The Glory Years

The vision of many entrepreneurial founders was to exit via acquisition. For example, the founders of SoHo, Connie Best and Sophia Collier, took sales to $25 million and then sold the company to liquor giant Seagram in 1989 for $15 million. They explained that they were handing off to a buyer with deeper pockets. Seagram expanded distribution and advertising, dismantling the independent distribution network in favor of its own wine cooler distribution chain.

The Snapple founders, however, decided to cope with the next stage of growth by hiring professional management. They turned to Carl Gilman, a beverage industry veteran from Seven-Up,

1 Drawn from Cynthia Riggs, "Snapple Cracks Tough Pop Market," Crain's New York Business, August 14, 1989

and Cara Trager, "Niche Entrepreneurs," Beverage World, October 1989.

2 Jonathan Bond and Richard Kirshenbaum, Under the Radar (New York: John Wiley and Sons, 1998).

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Snapple 599-126

to run sales and marketing. Gilman used focus groups to tell him how to improve Snapple's label design. He increased the advertising budget to $1 million, and intensified the independent distributor system throughout the East Coast. He viewed expansion to the West Coast as premature and a dilution of effort. "The stronger we build the East Coast, the more the West Coast will want

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us."

The distribution system grew until Snapple had a network of 300 small, predominantly

family-owned distributors servicing convenience chains, pizza stores, food service vendors, gasoline stations, and so-called mom-and-pop stores. A press story described the work as "salesman, truck

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loader, driver, heavy lifter and bill collector, all in one. " Distribution in Boston was in the hands of

Ted Landers, who had married into a Boston beer distribution company and now employed eleven people and several trucks to serve what he called the up-and-down-the-street business in soft drinks:

In 1985 we were distributing several brands of single serve beverage, SoHo and others. We saw lots of excitement around Snapple, and Snapple was doing its own distribution in Boston, about 250,000 cases a year, so we went to them and offered to grow their volume, which we did up to a million cases a year. We invested in coolers and vending machines for convenience stores, and talked up the product. We visited supermarkets, but they wanted slotting allowances and service calls, which can put a strain on my pocket book, so we stayed away from them in the main. Supermarkets were no more than 10 percent of my volume in 1994.

Nationally, supermarkets accounted for about 20% of Snapple's sales.

Snapple's promotion was an offbeat blend of public relations and advertising. The story of

the three founders' success in an industry dominated by multinational behemoths was told many times in many media. Advertising agency Kirshenbaum, Bond & Partners created a spokesmodel for

the brand in the form of Wendy Kaufman, a former truck dispatcher with a brash New York attitude. Wendy received paid exposure in the brand's advertising, but her eccentric personality also attracted unpaid media attention. She appeared on television shows such as Oprah and David Letterman, where she read Letterman's "Top 10 Least Favorite Snapple Drinks," and was interviewed by USA TODAY. At times she attracted 2,000 letters a week. She made appearances at retail stores, and accepted invitations to sleep-overs, Bar Mitzvahs and prom dates.

In a similar vein, the brand sponsored the radio programs of two very popular 1980s exponents of shock radio. Howard Stern specialized in tasteless and often outrageously sexist humor, and Rush Limbaugh built a following as an advocate of right wing political and social ideas delivered in a style that combined protracted ranting with acid sarcasm. In exchange for sponsorships on both shows, the brand received on-air

endorsement and sometimes became the subject of Stern's banter and Limbaugh's

...