HARvARD I BUsrNEss I scHooL

9-599-126

You rcnember the '80s, Philip?Ofcourse.

God hated tfu '3As.-

He didn't lite anything?He likd Snapple.- God liked Snapple?Not all the flaoors.

- From a 1998 episode of "Chicap Hop,"

a network television dlama

Anie Greenberg, Leona(d Ma$h, and Hyman Colden had been friends since high school. In1972, they went into business selling all-natural applejuice to health food stores in Greenwich Villagetnder the brand name Snalpk. By the late 1980s, theh brand had achieved near-cult status on bothcoasts of the United States, with its iced teas particularly in demand. It had taken 15 years, they said,to becone an overnidrt success.

In 1994 Quaker bought Snapple for $1.7 billiorl. The l,ision had been to combine Snapple withGatorade, an earlier and very successful acquisitior! to form a powerful beverage business unit.Snapple, however, did not thd\,e: sales Iell in each of the next four years, and in 1997 Quakerdespajred and sold the brand to Triarc Beverages for 9300 million. In ihe Iallout that followd, bothQuaker's chairman oI16 years and its president resigned.

Mike Weinstein. CEO of Triarc Beverage croup, reflected on fte acquisition. "At $300 million,Snapple is not a steal by any rneans. It's in decline, aDd wherl that happens to a brand it's seldonrthai it comes back. We're in a lashion business here, and when your imagery isn't fashionable, oftenihat's the end. But we've talked to a lot of consumers and we did a lot of qualitative research, andwe'\'e decided that in this cas the brand stjll has hherent stren8th. People feel good about it. Ir willrespond to the rightrnarketing stuff."

rr.ressor lol'n D.ishton pFpred thh.:se llBS.as.s a.e developed tul.ly a3 tne basis lor cls dnoEnon Cases aF not inrended ro serve asendosenmts, sou(.s oI prnmry d*a, orlllushations oJ ellediva or ln.ffecrile manalencnr.

1972-1986:'Ihe Origins of the BrandArni Greenberg's family ran a sardine and pickle store in Ridgewood in Queens, New York. His

friends l,onard Marsh arld Hyman Golden helped him jn the store, and in tum he helped rhem romanage their window washing business. ln the climate of the 1960s, Arnie encouraged the family rostock health foods. The three saw the popularity of natural no?reserative Iruit iuices in the store,and teamed up with a California based juice company to mandachrre and distribure a bortled appledrink. Evenhlally they broke away from the California partner and founded their own company-Unadulterated Food Products and the Snapple brand.l "100% Natural" became Snapple's mantra.

The business grew slowly usinS internally generated funds. It outsourced producrion andproduct development and built a network of distributors across New York City. Where possible, itsolrght nldividual distributo$ workint for their own account, and Iound as a rcsultihat the business needed to broaden the product line to keep distributors occupied. Itadded carbonated drinks, fruit-flavored iced teas, diet juices, selizers. an isoronicsports ddnk, and even a Vitamin Supreme. Some succeeded and many failed, butpremium pricing on ihe successful products covered losses on the failures. Revenuesand profits grew with expansion of distribution into New Jersey and Pennsylvania.In 1984 annual turnover was $4 million and it doubled by 1986 to 98 million.

s,

tusIn response to pleas from Snappl's dish.ibutom, the founders commissioned adverrising.

Jonadran Bond and Richard Kirshenbaum, who manaSed the Snapple account Later. descibed thisearly advertising as follows:

When tennis star Ivan Lendl was featured in several ads, the idea didn't quite come ofl(He) kept mispronouncht the nam as 'ShnappLe.' Luckily the acls *"..

"o bud thut tt'"y

didn't do the brand any harm. Had those schlocky ads been just a little better, rhey actuatiywould have been worse for Snapple. The ineptness of the ads actually came oI{ as charming,just like the cluttered packatinS.,Snapple was just one of many small beverage brands aspiring ro appeai ro young, healrh

conscious urban professionals in the 1980s. Napa Natura1s, Natural Quencher, SoHo, After the Fa ,CinsenS Rush, Elliot's Amazing, Old Tyme Soft Drink, Manly Sodas, S14o, and Original New yorkSeltzer were sone of the many contenders in what eventually came to be catted the Nw Age orAltemative bevera# category.

1987-1993: The Glory YearsThe vision of many enirepreneririal founders was to exit via acquisition. For example, the

founders of SoHo Connie Best and Sophia Collier-took sales to 925 million and then sold thecompany to liquor $ant Seagram in 1989 for 915 mitlion. They explained rhat they were handint offto a buyer with deeper pockets. Seagram expanded dishibution and adveitisint, dismanrling rhetudependent distribution network in favorofits own wine cooler dish.iburion chain.

The Snapple founders, however, decided to cope wi$ the nexr stage of gowth by bidngprofessional management. They tumed to Carl Gilman. a beverage industry veteran from Seven-Up,

r Drawn fron Cynthii Riggs, "snapple Cracks TouSh Pop Marker,,,C/,t,t Na! ro4 nmt,ess, Au*$r r4, l9U9 md cdaT de" . ' \ r . }p . , r r . en-u\ 8". . rS,h ,a O,rober a8'

to run sales and marketing. Gilnan used focus troups to tell lim how to improve Snapple's labldesitn. He increased the advertisint budSei to $1 million and intensified the independent djstributorsystem throughout the East Coast. He viewd expansion to the West Coast as premature and adilution of efIofi. "The stronger we build the East Coast, the more the West Coast witl want us."3

The dishibution system Brew until Srapple had a network o{ 300 smatl, predominantly family-owned distdbutols sefficinS convenience chains, pizza stores, food seNice vendors, gasolinestations, and so-called mom-and-pop stores. A prcss story described the work as "salesman, tuckloader, d ver, hea\.y lifter and bill collector, all in one."a Distribution in Boston was in the hands ofTed Landers, who had married into a Boston beer distribution company aJ|d now employed 11people and several truck to serve what he alled the up-and-down-the-street business in soft ddnks:

In 1985 w were distributing several bmnds of single-serve beverage, SoHo and others. Wesaw lots of excitement arcund Snapple, and Snapple was doing its own distribution inBoston about 250,000 cases a year so we went to them aJ|d offered to grow their volume,which we did, up to a million cases a year. We invested in coolers and vending machines forconvenience stores, and talked up the product. We visited supermarkets, but they wantedslotting allowances and seryice calls, which can put a strain on my pocket book, so we stayedaway from them in the main. Supemarkets were no more thar 10% of my volume in 1994.

Nationalt supemarkets accounted for about 20% oI Snapple's sa1es.

Snapple's promotion was an oftl,eat blend of public relations and advertising. The story of thethree {ounders' success in an indushy dominatd by multinational behemoths was told many timesin many media. Advertisint atency Kirshenbaum, Bond & Parfrers created a spokesmodel for the

brand in the form of Wendy Kaufman, a former truck dispatcher with abrash New York attitude. Wendy received paid xposure in the brand'sadvertisin& but her eccertric personality also attracted urpaid mediaattention. She appearcd on television shows such as Oprah and DavidLettermary where sh read Letteman's "Top 10 Least Favodte SnappleDrink," and was interviwed by USA TODAY. At times she attracted2,000 lettrs a week. She made appearances at rtail stores/ and acceptedinvitations to sleepovers, Bar Mitzvahs, and prom dates.

In a similar vein, the brand sponsored the radio programs of two verypopular 1980s xponents of shock radio. Howard Stem specialized intasteless and often outngeously sexist humor, and Rush Limbaugh built afollowing as an advocate of right wing political and social ideas delivered

=- --- -

-_-. ! in a sryle that con$ined protracted ranting with acid sarcasm. Intr-' exchange for sponsomhips on bo*r shows, the brand rcceived on-air

endo$ement and sometimes became the subject of Stem's banter arld Limbaugh's rants. Stern got toknow the founders of the business personally and conveyd to his listeners a genuine and infctiousrctard for the products and the people behind them.

Kbshenbaum, Bond adopted "100% Natural" not only as an advetising lnrc, but as the tesl whichall marketing actions had to pass:

"On th Front Lines of $. Bcvernge Wds: The Life of a Snapple Distriburoi, Slrivlng ltobbe6, llleg,l Parkers

599-726

Everything should and would be natural and real. We wouid use real people in realcircumstances- Everythjng that happened on a Snapple shoot was real. Artd we wodd run onair only what rcally happened, even if it didn't tum ou t the way we scripted it- We got a letterfrom a woman who claimd that her dog Shane came running every time he heard a Snapplecap being opened. We ca11ed him "Shane, the wonder dog." But when we tot there and triedit, nothing happened. The dog just sat there. So we ran the spot with the dog just lying there.5On a summer day in Hempstead. Long Island, Snapple invited consumers to a Snapple

Convention. Over 5,000 people sent the reqr,rired $5 and 20 Snapple labels, and participated in a dayof Snapple themed fun and games. A Snapple fashion show was won by a woman in a dress made ofSnapple caps.

Growth in the Altemative beverage category 'as explosive, with Snapple leading the way.

Snapple sales grew from $80 million in 1989 to $X31 million in 1992 and $516 milion in 1993.Comptition grew commensumtely, though Snapple's share remained steady at about 30'l"-40% ofthe rathr hard to define cateSory. (See Exhibirs 1,2,3, 4, and 5 for estimates of the growih andsLructure of the market and brand.) Brands like Clearly Canadian and Mistic appeared and Coke andPepsi were rumorecl to be enterinS. SeaSram, however, failed to benefit from th market's expansion,and sold SoHo for an estimated $1 million in 1992. EfIods to replicate its wine cooler success m meAlternative category had been unsuccessful. Industry observer; atiributcd its difficulties to misingp ce, to tampering with flavors, and to droppinS the patchwork of small distibutors in favor of largeliquor wholesalers. Seagram's presldent explained, "We are a large company and we should beoperating large businesses."6

In 1992, the three Snapple founders sold control of the company to a Boston pdvate investmentbank-the Thomas H. Lee Company in a leveraged buyout and subsequent public ofiering. In 1994withsales running at $674 million, Lee sold ii to Quaker Oatsfor $1.7 billion in cash.

1994-1997; Quaker Takes CommandQuaker in 1994 was a food company with Iour main areas of business: grain-based foods, bean-

based foods, pet foods, and beverages. The first three were relaiively maiure, while the bevragebusiness, consisting enfirely of the Gatorade brand, had been growing vigorously. Catoradeconh ibuted $1.1billion of the company's $5.95 billion tumover in that year.

Gatorade's odgins werc in a research project at the University of Florida in the early1960s to find a w:y to replenish fluids lost during exercise. The product, an uncarbonatedoranSe flavored mix ofwater, salts and sugars, was tested on the school's football team, theGators. Ii came to the notice of the spolts world when the Gators beat Georgia Tech in the1969 Orange Bowl and Bobby Dodd, the lclsing coach, explaned to Sparts lllltstrnfed: "Wedidn't have Gatorade. That made the difference." A sma11 packaged toods marketinS firm,Stokely-Van Camp, acquired the brand, took sales to nearly 9100 miltion, and sold ri toQuaker in 1983. Quaker took its sales to $1 billion in a decade.

s lrond and Ki.shsbanm, op cjt

Within the compant management attributed this grow$ to three main Iactors.T FirsL Quakerexpanded the line. When Quaker bought the business, Gatorade was sold in 32-ounce bottles.Quaker added a 16-ounce glass botde for the convenience store trade and 64-ounce and Salon plasticbottles for sale in supermarkets, and expanded from three to eight flavo6. Second, Quaker in reasedpromotional support. The bmnd became more visible in th major sports leagues, with MichaelJordan of the Chicago Bulls basketball team as a spoksman, and touchline visibility h the NationalFootball Leatue's televised games. Third, Quaker improved catorade's diskibution siSniiicandy.lntemationally, it entered 26 forei8n markets. Domestically, it improved coverage of the market andlowered its cost-to-serve by using the same lodstics system that distributed Quaker's breakfastcereals and snack. It shipped Gatorade in full huckloads from Quaker-owned manu{acturing plantsto the warehouses of the larger supermarket chains and the wholesalen who sefliced smalier retailchains and independent supermarkets. From these warehouses catorade was combined with othergocery products to make up full huckload delive es direct to retail stores.

Despite its success, some speculated ftat Gatomde could be an even larger brand in the hands of acompany with more scale in beverages. Indeed there was speculation that Quaker, no stranger totakeover rumors, miSht be acquired for the Gatorade asset. In 1993 Quaker had explored a jointventure with Coca-Cola to develop overseas sales, but talks had broken down. Domesrically, Quakerfelt that Gatorade was weak in what it called the cold chdnnel, compdsing street vendors,delicatessens, restarrants, recreation areas and so on, and distineuished from the so-called ?r,r/mcftarnel comprising rnainty supema-rkets. About 60% c,I Gatoradei sales moved tuough dre warmchannel. Qualer believed that there were two miljion points of availabilitv for soft d nks in theUnited Staler, and Ldtorade was represented in 200.000.s

The president of Quaker's beveraF division er?lained the decision to acquire Snapple: "Gatoradeput Quaker jn the bevera8e business; this substantialy broadens our position. Quaks has the visionof becominS a very large bevemte company."e Quaker's chai nan and CEO declared, "We expect tocreate th most innovative dist bution system in the bevemge industry, one which combines the very

best of the two organizations and enhances the value to ourtmde customers through more merchandisint, more points ofsale, and more in store relrigeration equipment. The Sreatadvantage to consumers js that you wil be able to buy Snappleand Gatorade in many more locations than you can today."tolaonard Marsh o{ Snapple agreed, "Quaker has the resourcesand manaSement skills to take Snapple to the next level ofsuccess."11 Snapple was expected to benefit from Quake/spackaging expe ence. supply drain expertise, and nodernirlformation systems capabiJities. For example, Quaker soughtto eliminate the substantial cost of middlemen in SnaDDle'sbdrm .hdnnel by shipping dirccl | Iom l .rc lL 'r) to

"uperm.rr letwarehouses, whil at the same time usint Snapple's middlemen to take Gatoiade to the cold channel.

7 Kevin lrmcella "Gatota.l. Takes the Hat: Llleriew with Qlaker Oats Co Catorade Vice Presi.lent lor Sals, U.S. mdCmada, David Willids," ,4S,4 P, Jmuay 15, 1994.

e Donald Uzi quoted in Jrline Liesse, "Qualer Ups rhe Ante by Buying Snappte but !oo.t cimt Denies Mov. was Anri,tal

s99-1N

Gatorade's market strengths in the U.S. South seerned to complement Snapple's strengths in theNorthast and West Coast.

It v,'as clear to Quaker executives that Snapple's irnagery was different from Gatorade's.Management talked of Gatorade as a "lifes9e" brand and Snapple as a "fashion" brand. They knwthat consume$ pictured Gatomde as a bevenge for those who worked out or played vigorous sports,and such lifestyles were a rclatively stable {actor in the culture. The imagery of the Snapple brandwas more fashion-sensitive, quirky and on the edge. But Snapple was now a bmnd with amual salesof $674 milliorL and the task of transitioning it from fte edge to the mainstream, from fashion tolifestyle, seemed within rcach.

Quaker rccognized the need to integate Snapple's entrcpreneurial culture wift its own. Theyretained Gilman and other Snapple sedor manatement on sholt-term conhacts- However, as a largecorporation, Quaker saw dsks to being associated wifi people who made a living cultivatingconhoversy, as Howard Stem and Rush Limbauth did, and ierminated both relationships along withWendy Kaufman's role. TerminatinS Stern was not a simple mattr. For many months a{ter he hadbeen dropped he railed atainst Quaker, urging listeners to siay away {rom "Crapple."

Quaker charged Gilrnan to wolk with Quaker executives to rationalize distribution of Gatoradeand Snapple. Teams went out to the 300 distributors to propose that they cede Snapple'ssupermarket accounts to Quaker in excharge {or the right to distribute Catonde to dre rest of thiraccounts. ln meetint after meeting, however, distributo$ resisted Quaker's proposals. They hadworked for yea$ to get into the blue-chip supermarket accounts, and were disinclined to give dremup. Most distributors held contracts into perpehrity. Despite protmcted negotiations rvith individualdistributors and with distributor councils, no channel mtionalization was achieved.

As Quaker introducd Snapple in largr pack sizes aJ'd in grater assortmnts, they metlirnitations on distributor trucks and retail display space in the cotd channel. In addition, it appearedthat Snapple played a less utilitaiian role in consumers' lives than Gatorade, which lent itself to larte-pack sizes because when people dmnk it they were thirsty and were looking to be rehydiafed, oftenin tearn settinF. Snapple, on the other hand, sold best in 16-ounce single-serve containe$.

Snapple sales peaked in 1994 at $674 milliorL and declined each year Lrntil by 1997 sales were $440million. Several changes in management did not help to reve$e the hend. In the latter years Quakerhired Mike Schott, Harvard MBA of 1972 \^,'ho had been dle executive who had built Poland Springbottled water to national prominence, but to no avail. Quaker was rumorcd to have discussd thesale of Snapple with Procter and Gamble, Pepsi, and Cadbury Schweppes, but in March 1992 Triarccame forward to buy the bmnd.

1997: Triarc Acquires SnappleTriarc Companies was an invstrnent company with a long history of buyhg and selling troubled

assets. Its controlling shareholders were Nelson Peltz, a member of Forbes list of 500 chestAmericans since 1989, and Peter May, his long-time partner. Thir beverage assets at the time wereMistic Bmnds, a tuuit juice aJld tea business acquired in 1995 Ior $97 miliorL and Royal Crown Cola(RC). Mistic's sates at the time were $140 million.

Managing the Triarc beverage brands was Mil Weinstein, who by coincidence had been a 1972Haffard Business School sectionmate o{ Mike Schott. Weinstein explained how he came to beworking at Triarc and charged with tryint to salvage Snapple:

I graduated from lafayette College in 1970 and applied to a couple of business schoolsindudnrt Haffard. Much to my surprise they accepted me. I went there with no particulartoal othr than to inprove my general business skills. ln my first year I was inteFiewing Iorsummer jobs/ not doing particularly well, and ny marketiDg prof calLed me in and asked howthe hunt was pin8. I said "not real well." He told me he had a ftiend at Pepsi who waslookjng for an intern. I interyiewed and got an oIfer. Since that was my only job offer. I endedup in beverages.

I liked the nldustry a lot so when I got my MBA, I joined Pepsi. I worked in theh bottlhgoperation, so while my classmates were goint to work in a jacket and tie, there was I in a pajrof jeans toinS out on a nerchandisint crew. But I thought it would be good to lean thebusiness from fie bottom up. After thrce years in bottlinS I spent some time h brandmanagement. It wasn't classic P&G stuft but morc focused on disidbution and promotion-key drivers in the beverage business.

In 1981 an opportunity came along to jonl a smafl beverate company called A&W RootBeer, part of United Brands, as VP Marketing. I jr.mped at it. After a few yea$, A&W wentthrcuth a levera8ed buyout in which I was a pafticipant. Back in those days you could dohighly leverated deals. We had a million dollars in equiq' and a hundred million in debt.Luckily the business was realy strong, the company went public and we paid down all thedebt in a few yearc. I eventually Eot promoted to president and jn 1993 the company was soldto Cadbury for over $300 million, generating a really nice return for us all.

When that happened I was 45 and decided ro go home. I knew I'd eventually go back towork but wanted to enjoy life for a while. One morning while I was doing laps ai a pool Idecided to w te down everything I knew about the so{t drink industry. So I wrote a manual Ilater named "The Complete Insiders Cuide to the U.S. Soft Drjnk Industry." Ii started as asmall pamphlet but later tumed out to be 280 pages of how the business $'ork. That led meinto beverage consultin8 and I staded a one-pemon corcultint business called Liquid Logic. Iused the manual in sninars for people who .anted to know more about the indushy-suppliers, ad agencies, promotion companies, etc.

I was hired to do due diligerce on a small company-Mistic Beverages-a premir,unbeverate company that cornpeted with Snapple. When that deal fell through, we put our owndeal together- We wrote a business plan and went out to raGe money. We found Triarc, whoalready owned RC and was interested in expanding their beverage holdings. The deal closedirl August 1995 and I stayed with Triarc to getMistic back on a growth path.

I remember disthctly Peliz ialking about buyjrg Snapple durint that tilne period. I didn'tthhk a lot about it because I was sure Quaker wouldn't sell at a reasonabte p ce. I alwaysthought Snapple was a great brand because we'd met it as a cornpetitor of Mistic. Right be{oreChristmas in 1996 I was on a plane with Peltz and he said, "You kno

', we'r going to get

Snapple." I told him it was a great brand and he'd have to {ind someone to run it. He Boes"What are you talkint about, you're goirg fo run it." I said "I don't do that, I'm a small-company tuy." After all, Snapple was over hvice the size of Mistic and RC combined, andtaking on something that big woded me a lot. Plus the brand was ir1 a tailspin. W were justin the process of absorbing RC and here it was just a few months later and I was gonrg to beasked to take on the beast thatbeatQuaker.

A Strategy for SnappleIn late 1997 Weinstein sat down with Ken Gilbert recently recruited from a major advertising

agency to the position of senior vice president of marketing at Triarc, to assess Snapple's siiuationand to set priorities for rversing the brarld's sljde.

On the tabl in front of Gilbert was a study wdiien by a New Jercey group that specialized in theapplication of anthropological methods to marketing problms (excerpted in Exhibit 6). The studywas recommended by Snapple's advertising agency, Deutsch, Inc., to help develop an overallcommunications stmtegy to reviializ the brand. Specifically, the study invesiigated Snapple'sconsumers, the culture they live in, and the dynamics of the ready-to-drink beverage category.

The stra tegic team a t Deutsch felt that the research provided Triarc with so esolid direciion. Thestudy had uncovered enough evidence to show that the btand had connected strongly withconsumeE in its early yeafs because it had done things differenily by being real, humarl andavoiding the expectd marketing slickness consumeE had Srown suspicious of. As $ey saw it, theresearch showed that the many changes Quaker had instituted went directly aSainst these pdnciples.Consumers had feltbetrayed, because Snapple had "sold out."

Weinstein seemed more reserved in lis attitude to the study. "Don't get me wrong, I'm notagainst research, but there are many things in the Iashion world that you can't research. Consumerchave a hard tim telling you what they want, and sometimes you have to look at what's workint inihe cateSory. The big thinS in this indrstry is what's new, what's moving, what's hot. If someonecomes out with an um shaped producl it's not that I want to copy it but I miSht say what's thebigger picture here? Is it about size, or color. or just what is it? Here's something new fromArizona." He poinied to a bottle of Adzona ]ced Tea whose top-io boitom shrink wrapped labelwith a willow motif gave it the appeamnce of a hand-painted Chinese ceramic container. "Thispackatint has impact. It will be noticed by anyone who looks at th beverage display.-

Weinstein continued, "This category has so many segmenls teas, ftuit drinks, diets, water-Could we get into water, withoui being the cheapest \ .ater? Could we be in the sports drink businesswithout competing head-to-head wiih Gatorade? I'd love to be in the chocolate beverage business.

"We knoy,, that we can sell around 200,000 cases oi just about anythhg. We talk to keydistributors and see whether they think we have a good idea. If they take it, we know withh t1rc firstmonth based on reorde$ whether we have a product that's selline or not. If we don r oo consumerrsearch, iI we do product development in house, if we do our own label design, we can be in themarket with a new concept for $50,000 to $75,000 inveshnent plus working capital for ingredients."

Cilbert defended the usefulness of the study. "Ask anyone what Snapple stands for and you'llhear the same words: quirky, offbeai. That's ok as far as it goes, but ii's hardly satisfying as theendpoint. It's supedicial. This study gives me a richer sense of what we have to work with.Granted, it does not narron the field of p1ay. It does not exactly make my job easy. But that's thenature ofthebrand. People make Snapple their own, so it ends up meaning lots of diFferent things toiots of diffrent people. Snapple users are really very average, normal people but the brand hetpsthem to think of dremselves as oflbeat."

Weinstein smiled. "I like to think that a Snapple drinker is anyone wirh lips. FIow would it be ifwe developed products first and then found out which segment drey appealed to? The mah thing isto keep moving the ball forward. We can't get mired in the nud."

Exhibit 1 Annual Sales Revenue oI Snapple, 1972-1997

el},vthdsnapple700

600

500an

5 400=

= 300.a

200

100

0Ni(o@ocnsf@rooNsf(oF-1.-NF-@@@@aOo)o)qrcD q, o) or o) o) o o o, o) o) o) o)

Souce: Vtuious publsnd soures

Exhibit 2 "Alternative" Beverage Category, 1997

Sports Drink16V"

Bottled Water190/o

100o/oJuice174/o

Non-Prcmium(e.9., Lipton,

Ocean Spray)244/0

Premium(e.9., Snapple)

24%

Total Alternative Beverage Category: $5 Billion at WholesaleThe Alternative category represenis 10% of the non-alcoholic beverage industry.

Source: TiarcComlany ertimat s.

Exhibit 3 SuDermarket Brand Shares.1997

Snapple35Va

Ocean Spray12%

Nesiea4Vd

Others290/a

Lipton9%

110k

Total Supermarket Altemative Beverage Category:Souice: Tridc Company stimrer

$0.3 Billion at Wholesale

Exhibit 4 Snapple Flavors

1) Lemon Tea2) KiwiSlrawberry3) lvlango l,4adness6) Peach Tea5) Pink Lemonade4) Diet Peach Tea7) Fruil Punch8) Raspberry Tea9) Diet Lemon Tea

10) Diet Raspberry TeaTop 10 of 50 Flavofs

15%755544433

55./"

Source Trim Compmy estimates

Exhibit 5 SnapDle Pro Forma Income Statement

599-126

Relailels price lo consurnerDislribulor's selling price to retailerI\,lanulaclurcr's selling pdce to distribuiorGost of goods (conlract manulacturing)Advenising and promolion

Prclit before generaland adminislralive cosis

$19 in supermarkel, $24 on slreet$15 to supemarkel, $19 to streel$10$6s2$2

So!r.e: Triarc Compdy estimates.

3y "sheet" G memt srrect vendors, delicatessens, restalrants, rcration areas, tc.

Exhibi t 6 Analysis of lhe Snrpple Brand

The Cultural Logic of the Snapple BrandExtracts from a reportprepared by the Cultural Analysis Group for Deubcb Inc.

November1997

Objectiaes. W}Io are core users ofSnapple, and how the Snapple brand is expressed in their lives?. How dos Snapple intersectwiih key trends and values in contemporary life?. What binds consuners to the brand?. Why do formerlyheavy users step away Irom Snapple, reduce their consumption?. t]]timately, what is the meaning of Snapple in people's lives? How can we develop a positioning

that transcends demography and geo$aphy?

Method. 72 in-home nlterviews in4 markets

2 developed marketsi. New York. Seattle

. Divided evenly by age:,, were with ages 18 291l were wi$ ages 30-44

. Divided into three groups:1. Long time loyalists (3+ years), heavy usrs (4+ times/wk.)2. New to franchise heavy users (where Snapple has become their favorite non-ca$onated

beverage in the lasi year)3. Lapsed users, former heavy users who continue to drink it (1-4 times/mo.)

The Meaning of Snappler Snapple defined by what itis not. It is suspended between:

depravi ty < --") Snapple a, . . > deprivat ion(colat (water. carrot juice, etc.)

It may substitute for cola, but is by no means concephally equivalent. Snapple use is driven, anddefined in large part, by a reaction against colas:

Snapple = reaction to modernity:

2 undeveloped markets:. Dallas. St. Loriis

Colas = modernity:

ariificial image realimpersonal personaluniJormity,excllrsion diversity,inclusivenessmassproduction variety,individualismautholrty anti-audlority, irreverence

It is not necessarily new age. nor a return to the past, bui a bit oI both. By "altemative," users donofmean drop-outs, sullen and alienated. Snapple is not like water. Snapple is a treat: Unlike water,llYoucanlt.r it arolnd {ithout drinkinq it."

Snappleshould drink it want to drirk itgood for you ful1emDtv full"raateless",/"du11" vivid sensoryexperience

. Snapple is seen in experiential terms. There is sonething essentially sensual about Snapple: ittickles, rouses, linters, wakes up the mouth, reminds one of the beach, or of watking bareloot in thegrass. It is fu1l oI varity, full of imag ation, Iull of f'lavor, more variety than any competiior, morenew combinations. The packaging (complexity of the label, stipplinS on bottle) plays out the tasteexperience. Drinkint a Snapple is engagin& not somethinS you do on autopilot-

. Snappl has in'betweenity, Snapple drinkers inhabit the vast middle tround between:

Don't care ltealv se,rouswhat lput into my body about healdl

There's a Goldilocks quality: "Not too thick. not too thnr, nottoo sweet, not too tart." Not a child'sdrink, but not middle-aged either. Ii is middle class. Colas = inner ciry, ghetto, and Evian, Perder =jetset. Every Snapple drn* is a blend. Snapple reaches across beverage categories. Ii's forwhenyou're on the go = in beiween activities. Snapple ratifies and intensiJies transitional periods.

P izto tal Char act eristics. Authenric The brand pivots on trust. lt makes implicit health claims. Its name conveyshealthiness:

snap - ) active, ----> healthy

apple j, healthyThe fruitiness claim works on t1rc same level as the vegetable content oI V8 juice. Fruit is healthtSnapple is fruity, so Snapple is healthy. If it is seen as faux fruit juice (e.9., Sunny DeliSht, Kool-Aid,etc-). then its claims (All natu(al ingrcdients, Made from the best stuff or eafth) become just so muchhype and Snapple drinkers are chumps. As a brand there is a Johmie Walker chamcter to Snapple- ttcan Ilicker from optimun and premium to inpure and inauthentic.

. Fun It's irreverent. Serious and Snapple go totether lil(e oil and water. To some eftent fun is acategory characteristic, differentiating all such beverages from serious health drinks, but Snapple isfun in a way unduplicated by any other bmnd of soft drink. lt is informal, natural, personal, andplayiul. That partly dedves from full taste, and parily because ii reprsents a break from mundaneroles and responsibilities. Ii is not "a pure escape" but oI a circumscribed and portable sort, onewhich is easily reseald and appoftioned. The playfulness is reinforced by imaginative use of nams,e.9., Melon Berry, Kiwi Strawberry, Mango Madness.

. Personal There's so much variety to choose from. You call find yoursell wiihin the brand. Thediversit)' within Snapple Brand nakes it a model for a multicultural society. There's a creativedimension that enhances and enlarges who you are. The logic of Snapple is very like the logic o{contemporary music, a creative fusion of siyles and genres. Snapple as a brand is coNtantly revisingrvhat it is. There is the image oI a sma]], cadng company. Ii is almost too individralistic. It is not afanily drint. Snapple in the refrigerator increases family iension.

. Vividly Sensual Snapple tastes good or it is roihint. Luxury today is being redefined. It needD^r1rabi6rr.lL

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Conspicuous rnderstated personally rea1,consumPtion - ^ ^>

"luxury that does" expedences

Sensuality is based on contmst and Snapple is replete with contrast. It is smoo$ but complx, withblend of different flavors and tastes both exotic and immediaie, stimulating and soodring.

Rumors

There is a disproportionate number of rumors about Snapple, inilially fueled by Snapple'smysterious and unsettling florescence. They typically start with Cenxs studying the label anddetectint a slave ship or the letters KKK, combined with a clnical worldvlew where conspiracjes arerampant, and a taste for celebrating the down and out.

Rumors have suggested that Snapple is anti abortion, antj.8ay, donatinS money to Jesse Helrns,and that Rush Limbaugh has major invesiment widr Snapple. The rumors vary but Lhe themes areremarkab)y consistent. They are not about ihe product, but about the compan, the "owners."Snapple is in an analogous situation to the Body Shop, which is also the subject of a dispropoftionatenumber ofrumors.

The issue is not the iruth or falsity, or even impact on sales, b11t rather the underlying message,which is one of a deep sense of betrayal, perhaps over impliot health claims, of a fear that Snapple isnot altrnative but rather reactionary.

What k Drizting Decreased Consumption?Ther appears to be no "Great Attractor" sucking consumers away from the braDd, rather a drift

away in all directions, toward water, back to sodas, to other competitoE in the category, e.8.,Arzona, Iruitopia. No competing brand stands out. Most competltom within the category wereseen as infe or, even by lapsers, e-g., "too sweet." Some drinkless Snapple juice and add ice tea.

There is aiso natural attfitior, caused by problems of distuibution: "I car't Iind my flavoranymore," or "My grocery store has only peach diet tea and kiwi shawbe y and I'm 8tting tired ofkiwi stEwberry" or "Coke made them take the Snapple coolers out athighschool."

There are health issues, especially with 3044 age group, a wake up call {rom the doctor,increasinS health sophistication. Non-lapsers ofien were not label readers.

Auihenticity was a concern, especially with 18 29 a8e group, who are very sensitive to beingtricked: "It even costs more than real juice," or the contmst between Snapple's small company irnageand the size ofthe company.

Fashionability and negative social prcssure were sometimes explicil A young male in SL, "I usedto drink a lot of Snapple, Arizona is newer" or a 40-year-old artrst in NY, "It's no lonter avanttuarde." More ofien they were implicit, a feeling you get carryinS or drinking Snapple in public,oiten expressed as a lack of presence, "You just don't see it anymore," "What happened to Wendy?"there was a feeling that Snapple has lost its focus and no longer appeats io imagination. "I heard they{ired Wendy."

Fdshion

Established bfarlds may wax and wane, but do not Iollow a fashion trajectory (even fashionlabels Ralph lauren, Calvin Klein. etc.). Estabiished brands are like animal species ach has itsown niche, and as its nvironment chanees, th bmnd either evolves or becomes extinct.

New ate concepts and health behaviors are often more like hula-hoops (e.g., TM, The Water Diet,Ab Roller, etc.). Desirability increases or decreases with perceived popularity. Fashion is tueled by

social competition. Much of Snapple's problem is ihat it behaves more like a "fashion water" than anstablished brand. Its product differentiation is weak. It lacks a compelting rcason {or use. It is notembedded in daily dtuals and routines.

Social ReinfurcementThe amount of Snapple consumed is highly conelated with irltensity of Snapple use in the

respondent's immediate social environment. It's not that Snapple is a social beverage-it is mrelyshared, and it is not true that those who drink Snapple with others (e.g., ttnch with colleagues) aremore likely to be a loyaIst.

Rather Snapple use needs to be socially reinforced. It is not physiologicaily addictive. and it lacksthe conceptual coherence that ddves botded watr (good for you, purifying, intimations oI workintoui) or Gatorad (replenishment intensity, etc.).

Adoption ProcessAdoption, becoming a heavy user, is typically extended over several years. Most "new" drinkers

had been aware of Snapple as far back in time as lorg-ferm loyalists. Many have been drinkingSnapple for years. Conversjon to heavy us is t'?ically no sudder revelaLion, but an extnded

Snapple d lkin8 flows through friendship networks. "Significant others" stand out as a keyturJluence. Flow tends to be from female to male. Among females. "we talk about ever).thing."Amont tuys, it q?ically works differently. It is based on observirlg what friends order, ho*.muchthey wanted it. etc. But Senerally adopters hy not to imitat immediately.

If it comes from Mo , becomes sacred.

UsagcA hith percentage of purchases are single bottles for immediate consumption, "I could save

money by buyint in bulk, but I don't." Snapple Iits with sandwiches and delis, not fast food. Usagefluctuates seasonally, diurnally, and cyclicalty: "I drink Snapple when I drive or long trips." It's anindividualistic, atomistic experience, normally not social or {amilial.

Snapple moments tend to be on ihe go, between hele and there, yet Ior many loyalists it's nottruly an impulse buy: "That first 15 rninutes when I get home liom work . . . I don't answer thephone, sit dowr and have a Snapple." It is part of a salesman's routine stop for gas, part oI takintbaby for a moming stroll, a way to get through early morning class, "breakJast at Dunkin' Donuts,then home with a Snapple while I do the crossword in ihe morning newspaper."

Regional DiJferences

NewYork Seattle Dallas St. LouisThe Region:"Th BisADDIe' Gaiorade huee hereActive to the point offrenetic

High mploymentmobility and dn'ersity(people explorinsdifferent career

Ambitious, dynamic,materialistic, engagedeconomically robust,open to chanSe,greganous,

Little in-migation

New York Seattle Dallas St. LouisNY has always beencharacterized byimmigant mindset asense of renewal andstartine afresh

Like New York, Seattlehas a Iairly larSe andinfluential gay

Janus faced-forwardlooking combined with

the past a search {ortradition

If Dallas is seaichingfor tradition, St. Louishas found it-muchmore iraditional,stable, centered

Individualism run Mix and matchinnovation, trowth,vitalitybased onrecombination, fusionof diverse elements

Individualist in acharacteristicallyTexas, "do things myway," but tempered by

nthusiasm for team

Individualism isattenuated, emphasis

fnends, family,communiiy, morc ofadaptive, defensivestance toward life

Health conscioushealth oriented

Strong artisLiccommunity community, spiritually

conscious, exploraf ory,embrace of the exotic

The Brand in the Region:Snapple has gone frombeing fashion forward

Most supermarketshave a juice bar, moresophisticatedcompetihon/ e.g.Odwalla. sobe

Snapple has gone frombeing fashion forwardto bejng peripheml

Less healthsophisticaLion,Snapple more likely tob seen as "healthy"

The brand's presence feeds on itself Little or no knowledge ofthe company, almost

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Profile of Snapple DinkcrsActive approach to life, suffused with youthlul attltude, outdoors- Snapple is not for the idle. Bui

Snapple is not the drink of the really serious athlete. Snapple drinker is open to new experiences, notparticularly suspicious. Lookint for dinSs to help them step back from life. Tendency ior besifriends to be less stable, morc "alternative," and looking for some of that in their own life. Sense ofbeing on the way somewhere, interested jn improving themselves, moving up. Snapple itself was amodel of come {rom nowhere. make-it-big-iime, success.

They are in control, not on a power trip, it is control of themselves. The rcaction aSainst colas is amatter of taking back control of their iives. The bottle plays directly to this sense of control: "Just fitsin your hand," ihe scrw on lid. Snapple is a way to "seize the moment." There is an individualisticethos and it resonates to individuals (or entities) making a comeback.

Drinkers fit a fairly narrow taste profile, lile swcei things. oiten disLLke carbonation ("Makes mebury," "It bums"). The dinker is not athacted to purejuice: "too citrust" "too acidic," "too thick."It's not foi health rluts, but for pople who cleave toward fr some and flavorful foods like Tex-Mex,lobster/shrimp, chocolate.

Meaning qf lNendyWendy embodies the essential Snapple qualities. A lowlevel employee in customer relations, a

nobody, who's now a celebrif, she exemplifies the entrepreneudal story thar endears manyambitious individuals to Snapple. She and the od$nal set of commercials perconify the tun, genuine,

personal, whimsical, and creative dimensions of the brand, the bottom-up popularity. She's like oneof their friends, a little odd but all the more endearinq.

Wendy rcaches all Snapple ddnke$ but ,'lof with equai efficacy. In Nw York and Seattl, peopleare more likely io read Wendy on muLtiple 1eve1s. In New York jndividuals tend to be much morefamiliar with the Snapple story, and Wendy Kauhnan is familiar jn terms of lived experience, "Iknow people like that." Wendy plays least well in heartland, where she seems more "exotic" dran"could be anyone." ln Dallas and St. Louis respondents see Wendy as "funny," "friendly." "full ofl i fe." "ener8el ic. nol Mddnon A\ enue

-t i , k.

Conclusions nru). hnplications. Regional ethos. Areas that are most "seitled," seff satisiied, are least susceptibl to Snapple's

"subversive" appeal. Areas with a postnodern mindset-a playful exuberarlce. expressior ofvivid seruuality (personal authenticity), and mix and match ethos are Snapple terdtory.

. Authenticity is pivotal. Overstating or misrepresenting Snapple's health bnefits does morehaim than tood. Snapple needs to be just healthy enough. Feeling better about yoursli is anintegral part of the Snapple expe ence, but it need not be the most important part.

. Corporate imag influences brand image. It need rot be a small company, but should be acaring company. Like social rehJorcement, corporate image provides justificatjon for use-Snapple needs to stand for something.

. Intermediate/interstitial character oI Snapple is both strength and weakness. As a strength.it broadens the customer base and market niche and is a sourc of symbolic power. As awakness, the brand can move quickly from hero to villain. (ln mythology, interstitial figuresfrequenily play the role of "trickter.")

. Social influence. Intensiqr of Snapple use is closely correlated with social presence. (SeriousSnapple drirkers far more like)y to be su ounded by other Snapple drinkers.)

. Become more established. Must move Snapple from a "{ashion water" to a staple brand likPepsi, Coke. Spdte with well-defined benefits and image.

. Develop sensuality of the Snapple experience. As wiih apples, there is an emphasis otlmouth feel. Consumption is not a rational act, as water consumption is. Uniike sodas,Snappl is both soothirg and stimulaiing.

. Snapple moments. FoId Snapple il1to penonal, daily rituals tim out from the mundane,imnsitional moments, sense of "lettint to," both restomtive and sensual. Link to trend awayliom a mechanistic vision of health toward a more holistic, "tood for you," being good to) our-eu. Berf inS bacl in l . 'u( h. de . l re""m8 vi