Quaker Oats And Snapple

"We have an excellent sales and marketing team here at Gatorade. We

believe we do know how to build brands, we do know how to advance

businesses. And our expectation is that we will do the same as we take

Snapple as well as Gatorade to the next level."

-Don Uzzi, President of the Quaker Oats Beverage Company, North

America.1

SUMMARY

The Quaker Oats Company, founded in 1891, is one of America's oldest food enterprises.

From its start in the domestic ready-to-eat cereal market, Quaker grew an appetite for

diversification, snapping up pet food, grocery and toy businesses, and by the 1960s had

expanded into Europe. While William D. Smithburg continued to diversify into the clothing

and optical wear industries after his appointment as CEO in 1979, he also launched an

aggressive program to streamline production through supply chain management and renewed

the company's focus on customer satisfaction. It was the purchase of Gatorade in 1983 (as

part of the Stokely-Van Camp purchase), however, that catapulted Quaker to the top of an

untapped beverage segment that, to this day, dominates 80% of the market. This deal was

vital to Quaker's long-term success - "Had we not bought Gatorade in the 1980s," which has

consistently brought double-digit growth, "Quaker would not have existed beyond that

time."2 While Gatorade is rightfully considered Smithburg's greatest feat, it was a relatively

smaller yet more publicized deal - the acquisition of Snapple - that will go down as

Smithburg's, and Quaker's, costliest mistake.

1Prince, Greg, "Come Together," Beverage World, December 1995, p. 50-54.

2Interview with William Smithburg, former CEO of Quaker Oats, January 18, 2001.

Quaker Oats and Snapple

The Rise of the Snapple Beverage Corporation

"We made the first ready-to-drink tea that didn't taste like battery acid." - Arnold

Greenberg, co-founder of the Snapple Beverage Corporation.3

Snapple, formerly known as Unadulterated Food Products, Inc. when it began in 1972, was created by

two window washing brothers-in-law, Leonard Marsh and Hyman Golden, and a health food store

owner, Arnold Greenberg. The New York City natives began distributing fruit juices, all natural

sodas and seltzers, and fruit drinks to local health stores by 1986, emphasizing a wholesome image

through its slogan, "Made from the best stuff on earth." It then entered the developing iced tea market

the next year with a brewed, high quality, "new age" Ready-to-Drink (RTD) tea, which would prove

to be a pivotal early move.

The Thomas H. Lee Company of Boston took interest in the growing company and successfully

proposed a leveraged buy-out in 1992, renaming it "Snapple" and taking it public a year later.

Wanting to propel the brand to national distribution, Snapple rolled out an advertising campaign

centered on a "customer relations, regular people" theme. An employee, Wendy Kaufman, became

the "face" of Snapple on TV, and her friendly "Greetings from Snapple!" salute and penchant for

answering fan mail on the air helped build the company's "quirky" positioning. Snapple also enlisted

the support of offbeat personalities, including top-rated shock-jock Howard Stern and talk show host

Rush Limbaugh, to create a quirky, individualist image that wooed a cult-like following. Another

mainstay to Snapple's success was in an aggressive distribution and employee loyalty strategy,

bolstered by a health and fitness craze prevalent at the time. Snapple had an extensive and dependable

network of independent co-packers and distributors to prepare, bottle, warehouse, and sell its

products. Not only did these distributors generate high margins carrying Snapple, they also had the

option of delivering other beverages to chain stores, further boosting profitability. Snapple also

prided itself on its people-focused management style - no layoffs and employee recognition have

always been the rule. Approaching its distribution and employee relationships with a relaxed,

respectful attitude, Snapple earned tremendous internal and operational loyalty.

Snapple also captured a significant market following by being an early mover into the RTD tea

division. The company was regarded as innovative, pioneering the hot package process for teas,

which would later become the category standard, and developing novel glass-front vending machines

and coolers to display its unique wider mouth bottles. Thus, although in early 1992 two beverage

heavyweights, Coca-Cola and PepsiCo, formed joint ventures for distribution of RTD tea products

with Nestea (Nestle) and Lipton (a wholly owned subsidiary of Unilever, Inc.) respectively, Snapple

still remained a strong competitor. The urge to jump into this beverage segment was understandably