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Nestlé to end iced tea venture with Coca-Cola and go it alone

Nestlé said that BPW would be disbanded on 1 January 2018, ending a partnership that begun more than 15 years ago.

The two companies adopted the name BPW for their joint venture in 2001 ahead of plans for expansion; it began in 1991 as Coca-Cola Nestlé Refreshments Company with the express intent of growing the ready-to-drink (RTD) coffee, hot chocolate and tea categories.

Swiss-headquartered Nestlé will grant Coca-Cola a license to manufacture and distribute Nestea in seven mostly European countries – namely Spain, Portugal, Canada, Romania, Hungary, Bulgaria and Andorra.

Nestlé already manages the Nestea brand through its Nestlé Waters division in several countries, including the US.

Once the new agreement takes effect, Nestlé Waters will also manage Nestea in all remaining European countries not affected by the licensing agreements.

A spokesperson for Nestlé said that BPW ‘had performed well for more than 15 years’, but now was the time to wind it up in favour of chasing growth independently in the $4.5-billion iced tea market.

The move represents Nestlé’s increasing confidence in both Nestea and the RTD category more generally, after it relaunched the brand with new packaging and a new ‘authentic’ range last month.

Analysis: A sector to take seriously

In the past few years, Nestlé has finally been investing in iced tea, and last month unveiled the biggest brand overhaul in the company’s recent history to mark the 40th anniversary of Nestea products.

Having modernised its main weapon in the iced tea category, Nestlé clearly senses an opportunity now to take back control of the brand and capitalise on growth in the RTD tea segment.

It may seem like a bit of a snatch-and-grab, but RTD tea is worth $4.5-billion a year and growing.

A large part of that opportunity is in North America – and in the US, where Nestlé had already stopped working with Coca-Cola on the distribution of Nestea.

But there is runaway growth in Asia, too, which accounts for nearly three quarters of all volume sales in iced teas, thanks in part to their popularity in China and Japan.

It seems likely then that the category’s global appeal and healthy credentials have persuaded Nestlé to take it more seriously, hence today’s announcement.

According to food and drinks consultancy Zenith Global, RTD tea is growing at a rate above the average for the global soft drinks market, making it one of the most exciting and dynamic categories with further potential for growth and innovation.

The category is forecast to grow from 35-billion litres in 2015 to 44-billion litres in 2020, and has grown at a rate almost 20% faster than the rest of the soft drinks industry.

Nestlé, while describing the market as ‘rapidly expanding’, said that it believed consumer choice was ‘evolving towards healthy hydration’.

Coca-Cola is yet to comment.