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In Bitter Iced Tea War, Osem Is Ceding Its Nestea Brand to Tempo

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Nestea iced tea in a supermarket.
Nestea iced tea in a supermarket.Credit: Dreamstime

The iced tea wars may be the most bitter of all of Israel’s marketing world.

Osem with its Nestea brand and Central Bottling Company with its Fuze Tea have spent tens of millions of shekels over the past four years trying to capture the 250 million shekels ($65 million) Israelis spend annually on the drink.

“Both Osem and Central Bottling have engaged in a very emotional struggle and invested a lot,” said a food industry source, who asked not to be identified.

Now, TheMarker has learned, Osem is ready to surrender and hand over the brand to Tempo Beverages, whose portfolio includes Pepsi and Maccabee beer.

Under an agreement the two have reached, still subject to antitrust approval, Osem will continue to make Nestea but Tempo will market the product in exchange for a percentage of sales, according to industry sources.

If implemented, the arrangement would be unusual. Nestle, the Swiss company that owns Osem, makes and markets Nestea around the world, which would make Israel an exception to the rule. On the other hand, Tempo, which is half owned by the Dutch brewer Heineken, already markets two Nestle products in Israel – the bottled water San Pellegrino and Perrier.

In the iced tea cold war, Nestea has been the loser. Since 2013, its market share has never exceeded 26% and in the first half of this year it fell to just 20%. Fuze Tea has always held a 50%-plus share and in the first half controlled 62% of the market.

The war got under way in 2012 when an 11-year-old global partnership between Nestle and Coca Cola for Nestea came to an end. The two sides parted on terms that gave Coke got the rights to the product’s formulation. Nestle got to keep the name but had to come up with a new formulation.

That meant that Central Bottling, the Israeli Coca Cola franchisee, got Nestea the tea while Osem got Nestea the name. It also got the 76% market share Nestea commanded at the time, but it very quickly lost it.

Central Bottling captured points of sale for its new Fuze Tea product in the two months that Osem had to wait till relaunch its version of Nestea.

Osem marketed Nestea as a more natural alternative made from spring water instead of tap water like Fuze Tea. But Fuze Tea countered with a slogan “Same same, new name.”

In just three months, Fuze Tea had 60% of the market and Nestea was down to 20%.

Discounting also failed. Nestea typically retails for 3.50 shekels for a liter bottle, compared with 4.60 for Fuze Tea, according to data from the market research firm Storenext. Osem, whose brands run from prepared salads to salty snacks, struggled in the unfamiliar soft drinks market.

“Central Bottling decided to act aggressively to win the market,” said the food industry source. “It made sure that Nestea wouldn’t be on the store shelves several months and invested a lot on advertising. To win back the market, Osem spent disproportionately in relation to sales Nestea actually had.”

For publicly traded Tempo, taking on Nestea is will give the major iced tea brand that it lacks. But it is taking on a bit of a risk.

“It’s not self-evident they will succeed with Nestea – they’ll have to invest a lot in it,” said a food industry source. “Fuze Tea is already an established brand and people like it.”

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