CAN QUAKER DELIVER ON SNAPPLE PROMISE?

JAMES TENSER

CHICAGO -- Quaker Oats Co.'s $1.7 billion cash offer for Snapple Beverage Corp. has touched off a wave of curiosity about the company's vision of a new type of beverage distribution system.

Except for a lightly publicized direct-store-delivery experiment in Florida this year, Quaker's Gatorade is a warehouse-delivered product with primarily chain distribution. Snapple is direct-store delivered through an intricate network of distributors, primarily up-and-down-the-street retailers and convenience stores.

Said William Smithburg, chairman and chief executive officer of Quaker, in announcing the planned acquisition, "We expect to create the most innovative distribution system in the beverage industry, combining the very best of the two organizations and enhancing value to our trade customers through more merchandising, more points-of-sale and more in-store refrigeration equipment. The great advantage to consumers is that you will be able to buy Snapple and Gatorade in many more locations than you can today."

Exactly what the structure of this innovative distribution system will be is the $1.7 billion question. Beverage experts' comments range from enthusiasm to skepticism, and even Quaker says it doesn't have all the answers yet.

Ken Robb, Quaker director of customer development for U.S. grocery products, spoke with Brand Marketing about the prospects for a dual distribution system. "One of the first orders of business for us will be to take a look at how to quickly achieve the synergies of these two diverse distribution systems and how can we take full advantage of the strengths of the businesses," he said. "As to what that will mean specifically? It is too early to comment."

But Robb added that Quaker was very cognizant of the need to expand its points of distribution for Gatorade from its present level of "about 200,000" mostly chain retail outlets to upwards of 1 million "points of sweat." The purchase of Snapple would instantly add hundreds of thousands of up-and-down-the-street locations and create a two-level distribution system that is unprecedented in the U.S. soft drink business.

"You are not the only one wondering about the distribution," said Tom Pirko, president of Bevmark, a Los Angeles-based consulting firm, who expressed some skepticism about the workability of this arrangement.

"Can you do both warehouse delivery and DSD?" Pirko queried. "Coca-Cola can't do both. No need to say more."

However, John O'Neil, food and beverage analyst at Oppenheimer & Co., New York, said of Quaker and Snapple, "I think that is their plan."

Added Hellen Berry, vice president of marketing research at Beverage Marketing Corp., New York, "Why not? Everybody else does. Coke and Pepsi do both," she said.

Leaving aside the question of to what degree the big cola companies have been experimenting with warehouse deliveries for their largest customers, it remains to be seen whether the Quaker-Snapple team can realize this vision.

The major soft drink companies operate with a "massive amount of capital" already applied against their DSD systems, said one observer. "Their infrastructure is already built, and it is not easy to kiss off your bottler by saying, 'We are going warehouse in your area with your five biggest accounts.' "

He continued, "Gatorade and Snapple are in a different position with regard to massive quantities of capital invested."

But Quaker management is the first to acknowledge its need to dramatically increase its retail distribution points in order to fend off new challengers in the sport beverage business.

Robb said, "Once the acquisition is completed, we would begin to take a look at how these two businesses would be brought together. Certainly one has to recognize that in no small measure the success of Snapple by its founders and distributors over the years has been one in which the DSD distribution arrangement has been a key element in success."