Iced tea makers prepare to pour it on.

Summer season may bring a shakeout.

You don't have to read tea leaves to figure out that the summer of 1995 ought to be a pretty interesting time in the ready-to-drink iced tea category.

For the past couple of years, just about every beverage maker in the business has set out to

The presence of newly named Quaker Beverage Co. raises some tantalizing marketing questions: Did Quaker make a costly mistake in shelling out $1.7 billion for a brand that may be losing some of its cachet? What impact will the Snapple acquisition have on soft drink giants Coca-Cola and PepsiCo, both of which are forging aggressively ahead in the category?

What about competition between the two soft drink companies? Last year, Pepsi pulled into a leadership position with its Lipton partnership, while Coca-Cola and joint venture partner Nestle SA lagged in their bid for market dominance. But Coke and Nestle have reworked their alliance, and Coke is adding iced tea to the Fruitopia line. As Tom Pirko, president of the New York-based consulting firm Bevmark, observes, "When Coke decides to pull it together, there's no reason that it shouldn't run neck and neck with Lipton. This is the year that they really join the game. We'll have to wait and see."

Then, too, there's the issue of rising iced tea star Arizona, along with a host of smaller players seeking to duplicate the entrepreneurial achievements of Arizona and Snapple.

All of which sets the stage for some ferocious competition in the months ahead. "I think we've seen the battle become increasingly intense over the last three summers," says John Clevenger, senior consultant with Meridian Consulting Group of Westport, Conn. "It's only going to get more so this summer."

"I think the category has historically been very competitive, and it will continue to be very competitive in the future," agrees Margaret Stender, vice president of marketing for Snapple.

A shakeout of some sort is likely, Clevenger says. "It's going to become a classic category management question of how many brands are necessary to give the consumer the variety they crave," he predicts.

"The strong will survive, but there will be a lopping off of the second-tier manufacturers," says consultant Don Stuart, a partner with Cannondale Associates of Wilton, Conn.

Stuart believes iced tea players ultimately will rise or fall on the basis of their strength in two key areas: distribution and brand imagery.

In the area of distribution, Quaker will feel plenty of heat from Coke and Pepsi, both of which have vast and finely tuned store-door distribution networks. Everyone agrees that Snapple has built an excellent distribution network for the up-and-down-the-street segment of the trade - local delis, convenience stores and such. And Quaker is noted for its ability to keep supermarket warehouses efficiently supplied with Gatorade. But how to bring the direct-store and warehouse-delivery systems together for maximum synergies? Quaker won't have the answers this year, and that will affect the bottom line.

"They're going to miss the '95 season trying to integrate Snapple into the system," says Jon Kramer, president of Local Marketing Corp., a division of the J. Brown/LMC Group of Stamford, Conn.

Industry watchers say both Coke and Pepsi will be loudly touting the freshness advantage their direct-store distribution affords.

Pepsi put the freshness issue front and center last year when it began promoting its use of reader-friendly freshness code dates for soft drinks. "The store-door delivery system puts a more contemporary product on the shelf, and Pepsi claims that makes for a fresher product," says Bill Sinnott, president of the Ryan Partnership Field Marketing Division of Westport, Conn. "They'll talk about that."

Pirko is confident that Quaker will realize distribution synergies for Gatorade and Snapple. "It's going to take some time," he says, "but it will happen. If anybody can do it, Quaker and Gatorade should be able to make the transition."

Certainly the stakes are high. Quaker paid a steep 32 times earnings for Snapple, and the expense of digesting the iced tea business is already thought to have contributed to the decision to lay off 600 white-collar employees.

Some sources predict that pressure to grow the Snapple business will prompt Quaker to push too hard at building sales volume and beating out the competition, all to the detriment of the Snapple brand. "I've seen some of their literature," says Maurice Hakim, president of Teacrest Corp. of Bedford, N.Y., a marketer of herbal iced tea. "They're going to be quite aggressive. They're pricing their product for the mass market . . . I think they're trying to drive out the competition.

"They're making a mistake," Hakim contends. "They should concentrate on the market. They're not going to drive out Pepsi and Coke."

As for the matter of brand imagery, Stuart suggests that all of the players will work hard to increase their appeal to the youth market. "You're going to see a renewed effort to capture the young consumer with more youthful, vibrant, enhanced imagery," says Stuart. "Iced tea still has a big opportunity to target the younger consumer with these New Age beverages."

Pepsi/Lipton marketers will attempt to do just that this summer by giving Lipton Brisk iced tea package graphics a more contemporary look and adding a tropical flavor called Caribbean Cooler. The Pepsi Lipton Tea Partnership also staged a heavy sampling program last month targeted to college students on spring break, and it will sponsor 13 youth soccer tournaments this summer.

Coke's Fruitopia iced teas are positioned to appeal to youthful consumers, which may give the company's ready-to-drink tea business a boost. Overall, however, the Fruitopia platform is not especially strong, industry watchers say, given the brand's modest sales record last year. "I think the jury is still out on Fruitopia, and [Coke's] ability to extend the core line," says Stuart.

Marketing pros also have mixed opinions about how successful Quaker will be at leveraging Snapple's strengths. As Stuart points out, Quaker marketers have a track record of beverage category success. "They've proven they can be a player in the beverage category," says Stuart. "They've proven they are fabulous marketers."

But as consultant Kramer observes, the situation with Snapple does not directly parallel the one with Gatorade. "When Quaker took Gatorade into something phenomenal," he says, "Gatorade was the only game in town."

Kramer is not convinced that Snapple and other iced teas have the potential to be mainstreamed. "The whole iced tea category is a niche player category," he contends. "Once Snapple became a national brand, a major player as part of the Quaker Beverage Co., it fell out of that niche category.

"Is the struggle to make it more mainstream really worth it?" Kramer asks rhetorically, and then answers: "I believe the answer is no. It's not a 'buy a six-pack and bring it home and put it in the refrigerator' purchase," he says.

With the Lipton brand, Pepsi has managed to create a winner without the benefit of anything remotely resembling a hip, trendy image, but industry experts chalk that up to product quality and the brand's well-known name. "They really applied themselves," says Pirko of Pepsi. "They spent the money to make good product. They came out with the right flavors."

In addition, unlike the Coca-Cola/Nestle alliance, which suffered from trying to operate under the pull of two strong management teams - one in Atlanta and one in Switzerland - the Pepsi/Lipton venture was organized with an effective division of responsibility. Says Pirko: "Lipton makes it, and Pepsi sells it. Pepsi's strength is getting it onto the shelves. Lipton knows how to make great product."

Among the leading iced tea brands, Arizona enjoys some of the strongest image advantages, but market watchers say that may not be enough to keep it afloat, given the parent company's limited ability to invest in the brand.

"Arizona is a question mark," says Stuart. "They have . . . the fabulous imagery, but I'm not sure they have the wherewithal, the clout, to continue to build the imagery and to ensure a strong distribution base."

Questions of image and distribution notwithstanding, all of the players face the question of how much growth potential really exists in the iced tea market. Ready-to-drink iced tea sales skyrocketed for the past couple of seasons and are expected to approach $2 billion this year. Toward the end of last summer, however, sales growth started to slow.

The market is in the midst of a "settling process," says Pirko, noting that this is a normal course of events.

"You have a season where you're bright and everybody is trying it," says Pirko. "Tea has had that for a very unusual two or three years."

Pirko expects the ready-to-drink iced tea business to remain strong. "I think the phenomenon of ready-to-drink tea has to do with a whole lot of things," he says. First, he notes, non-carbonated beverages are very much in vogue. In addition, fruit flavorings are popular, and the overall quality of ready-to-drink iced tea has improved dramatically within the past couple of years. "It has been the fastest-growing beverage in the grocery industry for the past two years," says Hakim. "It's not just here today and gone tomorrow."

"I have seen nothing from consumers that suggests it is a niche," adds Quaker's Stender.

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Here's a look at what's on tap for some of the key players in the iced tea category.

Snapple. Don't look for a lot of changes in the existing business plan for Snapple this season. Quaker simply hasn't had time to implement them.

The company plans to trim only a few low-performing Snapple SKUs and to fill in a couple of neglected niches in the product lineup, says Margaret Stender, vice president of marketing for Snapple. New additions include Just Plain Tea, which has no sweetenings or flavorings, a decaffeinated tea, and a more exotic variety called Passion Tea.

New television commercials are in the works, but they'll continue to use the "made from the best stuff on earth" theme and will feature Snapple's popular "real life" spokeswoman, Wendy.

Fruitopia and Nestea. This summer should be a pivotal time for Coca-Cola, which - unlike Quaker/Snapple - has plenty of changes planned for its iced tea business.

Coke will complement the core Nestea offerings with two new lines: Pitcher Style and Specialties. Pitcher Style is positioned as the iced tea of choice for traditional tea lovers. Specialties initially will feature an Earl Grey variety, eventually expanding to include flavors like oolong.

There also are four new Fruitopia iced tea offerings: Born Raspberry, Peaceable Peach, Lemon Berry Intuition, and Curious Mango. Fruit tea varieties previously available under the Nestea label have been discontinued.

While the company says Fruitopia teas basically will appeal to the fruit tea drinkers while Nestea's are for the serious iced tea lover, you can't really segregate the audiences for the two brands.

"It's not as simple as saying that this is for the 18- to 39-year-olds, and this is for 39 plus," says Coca-Cola spokesman Scott Williamson. "Different teas can appeal to the same consumer at different times. Iced tea drinkers tend to move within the category. It's a very fluid situation."

Lipton. In addition to its efforts to expand the appeal of Lipton Brisk, Pepsi will continue to emphasize Lipton Original's premium positioning. A major marketing initiative in support of the brand will be unveiled shortly.

Arizona. Arizona iced tea, the red-hot brand built by Brooklyn-based beer distributor Ferolito, Vultaggio & Sons, won't stray too far from the grass roots marketing approach that has served it so well over the past couple of years.

Up-and-down-the-street business in mom and pop stores and delis will remain Arizona's first priority, says corporate communications director Francie Patton. Convenience stores rank No. 2 on the company's priority list; major chains and mass merchandisers, where the cost of entry can be prohibitive, are in third place. Nonetheless, Arizona - which has built its reputation on innovative packaging - will introduce a 12-pack for mass merchandisers.

In addition, the company has unveiled an "Arizona stuff" merchandise catalog for this summer, where it will pitch everything from key chains to patio umbrellas in an effort to further expand the franchise.

Brewing up herbal tea business

A crowded, competitive marketplace did not deter tea importer Maurice Hakim from venturing into the ready-to-drink tea arena.

That's because he's convinced his cleverly named T42, an all-natural herbal tea, meets a consumer need so far unfilled by the big-name players in the ready-to-drink business.

"I think our product is a niche that is going to grow into the mainstream," says Hakim. "We do not have any caffeine in our product. I felt that there was a serious demand for that."

He adds that decaffeinated products account for about a quarter of regular tea sales, with herbal teas representing half of that niche, or 12.5 percent of the overall market.

Hakim says he's finding that T42 appeals to a broad assortment of consumers. "We're getting sales at several demographic levels - children, teen-agers and adults," he says.

T42 is made with what the company's press materials describe as "natural herbal infusions of hibiscus, rose hips, lemon peel, raspberry leaf and vanilla bean blended with fruit flavors." Available since last August and now sold in selected markets scattered throughout the Northeast, T42 comes in five fruit-flavored varieties: Cherry Cooler, Lemon Twistee, Peach Perfect, Raspberry Rapture and Strawberry Smoothie.

Hakim, whose family has been involved in the global tea trade since the 1930s, established his Bedford, N.Y.-based company called Teacrest Corp. in 1993. He and partner Herbert Stein initially had planned to market an herbal tea to retailers for private label sale. Hakim says they found that retailers were reluctant to buy into the concept, however, because the major branded marketers did not include herbal offerings in their ready-to-drink tea lines. He says he's expanding distribution slowly, seeking out distributors who are willing to devote some time and attention to building the T42 label.