Quaker Oats was founded in 1901 when four oat mills merged to form a larger entity.
Over the subsequent years the company expanded into numerous other areas of business such as acquiring other breakfast cereals, food and drink products and even into completely unrelated fields such as children’s toys.
The company bought Stokely-Van Camp, Inc., the makers of Gatorade in 1983. It was a strategic move that placed Quaker at the top of the sports drink market, where Gatorade remains today, retaining 75% of the market in North America.
Snapple began life in 1972 as Unadulterated Food Products Inc. which produced and distributed a range of beverages to health food stores in the New York City area. It then entered the iced tea market with a product that helped it capture a significant share of that sector as well. In 1992 the company was bought, renamed Snapple and taken public.
A savvy advertising campaign, along with its extensive network of independent manufacturers, packers, and distributors, enabled the company to become the fastest-growing beverage enterprise of the early 1990s.
By the end of 1994 however, the iced tea market had softened and competition from other brands such as Nestea that was distributed by The Coca-Cola Company and Lipton which was distributed by PepsiCo, gradually eroded Snapple’s market share.
The Quaker Oats Company was initially attracted to Snapple because of its manufacturing and distribution network and Quaker also believed that synergies would result from merging the Snapple and Gatorade brands.
The Snapple purchase made the Quaker Oats Company the third largest drinks producer in North America at a cost of $1.7 billion.
Various Wall Street advisers had warned Quaker executives at the time of the takeover that they were overpaying for the company, but they were overconfident in the perceived synergies on offer. Poor planning also meant that the acquired company immediately began to lose market share due to the operational problems it encountered and it was unable to bounce back as competitors forged ahead while they tried to remedy the situation.
The Quaker Oats’ management was under the impression that it could leverage its relationships with supermarkets and large retailers to gain more shelf space for its Gatorade products, but it had fundamentally misunderstood how the Snapple distribution system operated. It transpired that about half of Snapple’s sales came from smaller channels such as convenience stores, petrol stations and independent distributors.
Quaker also fumbled Snapple’s new advertising campaign, and the opposing company cultures translated into a disastrous marketing message that was championed by managers not fully attuned to Snapple’s brand positioning. The previously popular advertisements that Snapple used to run became diluted with inappropriate marketing signals.
By 1995, Snapple had posted a 5% decline in sales.
No single issue led directly to the problems that Quaker found itself confronted with after the purchase of Snapple. It was a collection of problems that compounded each other.
In 1997, the Quaker Oats Company sold Snapple to Triac for $300 million, $1.4 billion less than it paid for the company just three years earlier – an amount that equates to a loss of $1.6 million for each day the company owned Snapple.
In our opinion however, Quaker shouldn’t be so hard on themselves. Our publisher Darcus White once paid £1000 for a Rolex wristwatch he bought from some dodgy bloke in London’s Camden market. It transpired the watch was fake when the straps fell off just as he was trying to sell it to a pawn broker who refused to pay a single penny for it……