case
March 10, 2010
The Snapple story has three chapters. Chapter 1 covers 1972 to 1994 from Snapple Beverages’ birth to its sale to Quaker Oats for $1.7 billion. Chapter 2 covers the 27 months Snapple was part of Quaker before its sale to Triarc Companies for $300 million. One way to think about this $1.4 billion loss is that
Quaker owning Snapple for 820 days was equivalent to renting it for $1.7 million per day. (A recent Money magazine article designated Quaker-Snapple as one of the worst mergers of all time- joining AOL – Time
Warner, Daimler-Benz/Chrysler, and GM/Saab in the top four.
1 ) Chapter 3 addresses the opportunity for its new owners, Triarc Beverages.
The company that would eventually become Snapple was born as Unadulterated Food Products, Inc. in 1972. Unadulterated began by selling all-natural apple juice in Greenwich Village, New York. Over time, it came to be known as the prime force in creating the “new age” or “alternative” drink category posing a challenge to the carbonated beverages of Coca-Cola and Pepsi. Snapple’s primary products were iced teas, fruit juices, and natural sodas.
Snapple enlisted small independent distributors to get its product into a variety of outlets “up-anddown-the-street,” e.g. delis, convenience stores, liquor stores. Mostly, Snapple was sold in these outlets cold, and in a single serving size. Only 20% of its sales were in supermarkets. Snapple was premium priced and backed by the advertising slogan: “Made from the Best Stuff on Earth.” It gradually expanded its geographic reach. Boosted by introduction of iced teas, the company grew rapidly during the late 1980’s.
Snapple Lemon Tea was the first tea product in 1987.
Many credit a somewhat unconventional duo with advertising and promotion that helped to boost
Snapple’s sales rate. In 1991, Wendy Kaufman became Snapple’s “Dear Abby” answering customers’ mail.
Snapple’s ad agency, however, decided to extend Wendy’s role into ad spokesperson as well, noting the need for “real people” to be seen on television for a brand like Snapple. Kaufman became a cult figure, the
“Snapple Lady,” appearing not only in Snapple ads but also on television shows such as David Letterman.
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© 2010 Robert J Dolan. This case was written by Dean Robert J Dolan of the Ross Business School at the University of Michigan as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Unauthorized reproduction and distribution is an infringement of copyright. Please contact us for permissions: Permissions@GlobaLens.com or 734-615-9553.

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See Wendy on YouTube. Suggested commercials to get a good sense of the nature of this campaign after searching on “Wendy Kaufman Snapple” are:
• 37 Cornish Game Hens
• Shane the Wonder Dog
• In-Home Demo
The company also enlisted Howard Stern, the premier “shock jock,” as a spokesperson. Stern’s radio show was well-known for its controversial humor. For a sample of how Snapple was featured on the Stern show, see “Howard Stern Monkey Luvs Snapple,” also on YouTube.
In the early 1990’s, Snapple sales took off- reaching $231 MM in 1992 and then more than doubling for
1993. 1994 sales were $675 MM. The rapid expansion in the early 1990’s was made possible by an injection of cash into the company by a Boston investment firm, Thomas H. Lee Company. Lee essentially acquired
Unadulterated Food Products Inc. and merged it into the newly formed Snapple Beverages Corporation.
In 1993, it became a publicly traded company. Even with this capital, however, Snapple was not able to compete with the “big guys” on the block, Coca-Cola and Pepsi who had now begun also to pay attention to this “alternative” category.
Gatorade
While Snapple was the “big story” in the fruit juice and ice tea part of the alternative beverage category,
Gatorade became the star of the sports drink segment. The story of Gatorade’s “invention” by Florida
“Gators” football staff was well known. In 1965, an assistant football coach at Florida asked University researchers for help with heat exhaustion problems being experienced by some players. The result was the
“precisely balanced carbohydrate-electrolyte beverage” that became Gatorade.
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Stokely Van Camp bought the rights to Gatorade and grew sales to $100MM by 1982. In July, 1983 after a battle with Pillsbury, Quaker Oats bought Stokley for $269MM.
Quaker had a history of successful acquisitions and brought their marketing and operations expertise to
Gatorade. By 1991, Gatorade was the “official sports drink” of the National Basketball Association, National
Football League, Major League Baseball, Professional Golf Association and National Collegiate Athletic
Association.
3 Sales were near $1 billion and Gatorade held 86% share of the sports drink market.
4 Gatorade’s spokesperson was Michael Jordan, signed to an $18 million, 10-year deal. For the most famous of Jordan’s
Gatorade ads, see the 1992 YouTube “Be Like Mike Gatorade Commercial.”
In 1994, despite challenges from entries like Coca-Cola’s Poweraid, Gatorade still held 80% of the U.S. sport drink market.
5 Gatorade represented $1.1 billion of Quaker’s $6B in sales.
William Smithburg, was appointed Quaker’s CEO in 1979 and was concerned about the growth opportunities in the Quaker portfolio overall. Consequently, he embarked on acquisitions to improve growth prospects.
In November 1994, Quaker Oats acquired Snapple for $1.7 billion. Snapple’s sales for 1994 were $675
MM, so the purchase price was 3 times sales and 28 times earnings.
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The acquisition made Quaker the U.S.’s third largest non-alcoholic drink marketer behind Coca-Cola and
Pepsi. CEO Smithburg billed it as merging together “the marketing muscle and growth potential of two of the great brands in an increasingly health-conscious America: Gatorade in sports drinks and Snapple in ice tea and juice drinks.” 6
The CEO of Snapple prior to the acquisition noted that Quaker has “the resources and management skill to take Snapple to the next level of success and help get the best stuff on earth to more places on earth.” 7
Generally, the deal was seen to be predicated on synergy:
• Geography- Snapple was strong east and west; Gatorade in the midwest and south
• Distribution Type- Quaker had its own distribution system for Gatorade, going through warehouses to supermarkets. Snapple, on the other hand had 300 independent distributors who sold mostly “up and down the street” to outlets like delis and convenience stores. Some distributors did have some supermarket accounts. The plan was to create a “hybrid system” with both products being distributed through both methods. Snapple’s independent distributors would now have the right to distribute
Gatorade to their “up- and-down-the-street” accounts. In return, they were expected to surrender their supermarket accounts to the Gatorade distribution system which would now take Snapple into the supermarkets.
A BusinessWeek writer opined:
“Distributors will make or break the acquisition. Quaker sells most of its Gatorade in supermarkets and convenience stores, often in unrefrigerated plastic bottles. Snapple made it big with cold, single-service glass bottles through vending machines, restaurants, and independent retailers. Quaker needs to convince Snapple’s 300-plus distributors to carry Gatorade to their customers. It also needs to renegotiate their exclusive-territory agreements to bring Snapple into supermarkets on grocery wholesaler trucks. ‘It is not an easy management task,’ Quaker Chief Executive William D. Smithburg concedes.
8 ”
An additional challenge would stem from the fact that Snapple’s most recent quarterly performance was not strong – with sales down by 6%.
Along with the innovative dual distribution strategy, Quaker made other changes with Snapple, e.g. introducing more sizes including the 32-oz. and 64-oz. as Gatorade had and adopting more “mainstream” advertising, dropping both Wendy Kaufman and Howard Stern. Stern promoted a boycott of Snapple in return.
Some results:
June 20, 1995 “In first six months since acquisition, Snapple sales are 15% below last year.” Quaker Oats said it remained confident that the Snapple acquisition would enhance its long-term earnings growth rate.” 9
October 23, 1995 President of the Quaker Beverage Division who oversaw the Snapple acquisition resigns.
December 22, 1995 “Still bleeding from its acquisition last year of Snapple, the Quaker Oats
Company warned Wall Street today that earnings would fall far short of expectations.”
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April 1996
“Snapple…is operating at a pace that suggests it will pile up losses of about $55 million in the quarter, the result of weak sales and cost of junking inventories that do not have the new labels and packaging
Snapple will introduce….” 10
New ad campaign introduced with tag line “ Threedom equals Freedom” noting Quaker would be happy to be #3 behind Pepsi and Coke and did not have to challenge these for leadership to be successful.
11
June 1996 Quaker drops Kirshenbaum Bond and Partners as advertising agency; this agency had Snapple account since 1992 and was responsible for making Wendy an icon.
12
August 1996 | “Analysts estimate that Snapple will have rolled up $150 million in losses by second anniversary of acquisition.”
This year’s ad campaign “has been scrapped.” 13
March 27, 1997 Quaker sells Snapple to Triarc for $300 million – a $1.4 B loss over
27 months.
April 23, 1997 Quaker Oats announced chairman and CEO William Smithburg will resign as chairman and chief executive as soon as successor is chosen.
“Mr. Smithburg’s exit is coming sooner than expected on Wall Street but had been widely viewed as inevitable after the Snapple debacle.” 14
Triarc Beverages was an “industry squirt” according to BusinessWeek.
15 Triarc held RC Cola, Diet Rite, and Mistic Iced Tea. Triarc had purchased Mistic in 1995 for $97 MM. Mistic was a competitor to Snapple, but much smaller with annual sales of $126 MM in 1995. 16 After Snapple dropped Howard Stern, Mistic signed Stern and he began a “Replace Snapple in your refrigerator with Mistic” campaign. In early 1996,
Triarc had approached Quaker with an offer for Snapple: “We can take this nightmare off your hands.”
However, Quaker was not interested. 17
About a year later, with millions in losses in between, Quaker changed its mind. Snapple’s sales had fallen to $550 MM per year but still, to some the $300 MM price seemed like a fire sale.
Within a couple months, Wendy was back as the Snapple Lady. In June 1997, Wendy proceeded down
5th Avenue in New York on flatbed truck shouting the news “Wendy is Back, Louder Than Ever.” To mark the occasion, Triarc introduced a new Snapple Flavor: Orange Tropic Juice with the subtitle “Wendy’s Tropical
Inspiration.” Triarc’s senior marketing VP commented “I figured that by bringing her back, it’s at least one right decision I’ll make.” 18
What else could Triarc do to revive the Snapple brand after the Quaker Chapter?
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J. Buckland, “Worst mergers of all time,” Money, February 19, 2010 at money.ca.MSA.com, accessed 2/25/2010 www.gatorade.com/history -accessed 3/8/2010
“Gatorade Still Champ in Sports Drinks,” New York Times, August 29, 1991, p.D2
“Coca-Cola Turns from Talk to Contest with Gatorade,” New York Times, April 25, 1992, p.135 of New York edition
M. Standaert, “Quaker Oats Lumpy road,” brandchannel, June 2, 2003.
G. Collins, “Quaker Oats to Acquire Snapple,” New York Times, November 3, 1994, p. D1 ibid
G. Burns, “Tea or Synergy?,” BusinessWeek, November 14, 1994.
9 “A Slowdown in Snapple Sales,” New York Times, June 21, 1995, p.D3
10 B. Feder, “Still Drowned by Snapple, Quaker Sees a Big Charge,” New York Times, December 22, 1995, p. D1
11 G. Collins, “Quaker Oats May Bring Back the Snapple Lady,” New York Times, December 20, 1996, p. D4
12 A. Bryant, “Quaker Oats Unit Consolidates 2 Accounts,” New York Times, June 6, 1996, p.D7
13 B. Feder, “Takeover of Snapple is the Prime Suspect in the Food Giant’s Weak Showing,” New York Times, August 7, 1996, p. D1
14 B. Feder “Quaker Chief, Tied to Losses from Snapple, to Step Down” New York Times, April 24, 1997, p.D1.
15 I.J. Dugan “Will Triarc Make Snapple Crackle?,” BusineesWeek, April 28, 1997.
16 ibid
17 ibid
18 S. Elliot, “New Owner of Snapple Brings Back its Most, Uh, Unforgettable Endorser,” New York Times, June 6, 1997, p. D4.
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