Ready for Looming Ready-to-Drink (RTD) Tea Wars?

As recently announced, Starbucks (NYSE:SBUX) and ABInbev (NYSE:BUD) have entered into a partnership to produce and distribute the first ready-to-drink teas under the Teavana line in an effort to capitalize on the billion-dollar plus and fast-growing beverage market. The move is obviously a good one for Starbucks as it looks to extend its brand beyond coffee and tap into adjacent revenue sources without having to invest in either production capacity or a distribution network. Starbucks is no stranger to this type of joint venture as it’s similar to the deal between Starbucks and PepsiCo to make and sell ready-to-drink coffee. The venture is also a good one for ABInBev, at least in the near-term, as it seeks to offset dwindling beer volume and offer its distributor network a nonalcoholic beverage to sell after recently losing Monster to Coke.

Implications

Starbucks perceives this foray into ready-to-drink teas as an opportunity to do for tea what they did for coffee and will undoubtedly invest heavily in aggressive marketing and brand-building tactics to build brand awareness, trial, repeat purchase and ultimately consumer preference. For their part, ABInbev will flex their distribution and trade muscle to secure rapid, broad-based all-commodity volume (ACV) across the convenience and grocery channels and then negotiate preferable share of space and in-store placement agreements with retailers. They will also leverage trade promotion and pricing to reinforce marketing efforts and disrupt consumer purchase behavior at point-of-sale. The upshot of this partnership is good news for consumers and retailers alike as greater competition will increase product variety, brand choice, price assortment, in-store availability and special offers as Starbucks invests to capture market share through trade promotion and customer merchandising initiatives. But the news is not so good for ready-to-drink tea makers and their distributor partners, including PepsiCo which has a joint venture with Unilever for Lipton, Pure Leaf and Brisk, as the cost of doing business is primed to go up.

The Question

Ready-to-drink tea makers and their distribution partners are just the latest example of emerging battlegrounds across the food & beverage industry as M&A and joint venture activities continue to shift the competitive landscape. So the question is, “What must incumbents and their partners do, many of whom are smaller players with limited resources, to protect their competitive position during a coming offensive which is often orchestrated by a larger, better resourced competitor?”

Considerations

• Organizational Strategy

  • Incumbents must achieve a ‘multiplier’ effect for their marketing and sales resources to enable agility and the ability to redirect resources for greater impact. This is best succeeded by taking a holistic view of their investment mix across the combination of traditional sales and marketing functions. No longer can these functions operate semi-independently or in silos.

• Operational Effectiveness

  • Incumbents must ensure internal processes support integrated customer and consumer business planning and execution and ensure internal capabilities are optimized through human capital management and organizational design.

• Technology and Analytics

  • Internally, incumbents must leverage technology to provide visibility into marketing performance through improved measurement and analytics across media and sales channels. In addition, they must generate predictive and prescriptive insights tailored to meet the unique needs of their retail customers.

The consumer products landscape, especially food & beverage, is undergoing a rapid spate of changes as companies adapt to changing consumer preferences, shopper behavior, blurring channels and customer consolidation. Subsequently, incumbents are increasingly threatened by new competitors buoyed by deeper pockets combined with motivated partners and must therefore find new ways to compete and win. Your category may be the next ‘battleground.’ How ready are you?

References: Starbucks, Anheuser-Busch Team Up For Tea Launch, Fortune, June 2, 2016