Nestle, Coke Plan Joint Venture for Ready-Made Coffee and Teas

SAN FRANCISCO â€”  Coca-Cola Co. and Nestle S.A., already husky players in the global beverage market, said Thursday that they plan to team up to make ready-to-drink coffees and teas.

A new company to be owned and funded equally by the two giants would make and sell concentrates for use in production of beverages under the Nescafe and Nestea brand names. The venture would exclude Japan, where both Coca-Cola, based in Atlanta, and Nestle, of Vevey, Switzerland, already compete with similar products.

One beverage industry consultant said such a union would enable the companies to tap into a potentially explosive market, with Nestle providing the well-known brand names and Coca-Cola supplying the distribution clout. In Japan, for example, the ready-to-drink coffee market grew 20% last year and is worth an estimated $10 billion at retail.

“It’s a very good move for both companies,� said Hellen Berry, market research director for Beverage Marketing Corp., a consulting firm in New York. “It gives (them) a niche in a beverage category that I suspect is going to become very important in the 1990s.�

Francois-Xavier Perroud, a Nestle spokesman reached in Switzerland, said it is far too early to say which markets or products would be of most interest. The products could be served hot or cold, although packaging details have not been worked out. In Japan, many consumers pour their canned coffee over ice, a variation that has not yet found wide acceptance in the United States.

“Once the management team is at work, they will have to identify markets,� Perroud said. “We’re certainly not limiting our sights to any particular regions.�

Coca-Cola, which sells syrups and concentrates to bottlers in 170 countries and has the world’s largest beverage distribution network, has marketed ready-to-drink coffee in soft drink-style cans in Japan under the Georgia label since 1975. The beverage, much of it sold through vending machines, is the leader with an estimated 27% of that market.

The company had total sales last year of about $9 billion.

Nestle, No. 2 in Japan, distributes Nescafe ready-to-drink canned coffee through a partner, Otsuka, a beverage distributor.

Pepsi-Cola, Coke’s big U.S. rival in soft drinks, also sells coffee, under the Freedom label, and tea, called Jazzinn, in Japan in both cans and bottles. Spokeswoman Becky Madeira said Pepsi has found that most customers prefer cold refreshments. She added that Japanese consumers face a dizzying array of 150 flavors of soft drinks.

Analysts said General Foods sells a similar canned-coffee product in Japan. A General Foods spokesman could not be reached.

Nestle, which claims to be the world’s largest food company with 1989 sales of more than $30 billion, owns Nestle Chocolate Co., Carnation Co., Stouffer Foods Corp. and Nestle/Hills Bros. Coffee Co., among many others. Based in San Francisco, Nestle/Hills Bros. sells coffees under the names MJB, Chase & Sanborn, Sark’s Supreme, Nescafe and Taster’s Choice. Nestle’s Nestea competes with, among others, a canned iced tea made by Thomas J. Lipton Inc., owned by Unilever.

Details of the joint venture could take several months to work out, observers noted. By signing a so-called letter of protocol, the two sides have “agreed to agree,� said George E. Thompson, a beverage industry analyst with Prudential-Bache in New York.

“This is a long-term deal,� Thompson said, adding that results of the venture probably would not be reflected on either company’s bottom line for at least three years. Thompson added that, in his view, a wide-scale introduction of canned coffee in the United States would probably be “way down the road.�

The new company is expected to start with funding of $100 million.