In the basement of Quaker Tower, a mundane office building on Clark Street at the Chicago River, sits a kettle of hot oatmeal. The other Quaker items in the employee cafeteria--the Gatorade and the granola bars and, until recently, the Snapple--cost the employees money.
But the oatmeal is free. Just grab a ladle and load up as much as you can. Oatmeal is one of the cheapest foodstuffs around. Remember the slogan "Just pennies a serving"? It's even cheaper to make, and a huge profit maker to sell. Hot oatmeal built the company into what it is today.
Selling it to the employees, well, just somehow wouldn't seem right.
If the free oatmeal is a nod to the company's distant past, it is just that--a nod. Oatmeal is kind of boring, and not the sort of product that fires up the blood in corporate veins nowadays. Quaker is not about oatmeal anymore. Like most companies today, it is not even about profits, in and of themselves. It's about growth, and stock, and stock prices, and keeping shareholders happy.
A common enough philosophy lately, but one that led Quaker Oats into one of the great business disasters of the 20th century: the purchase of the Snapple Beverage Company for $1.7 billion in November 1994. When Quaker finally dumped the company this past March, for $300 million, it lost a cool $1.4 billion on the transaction, not to mention the hundreds of millions frittered away on ill-conceived advertising, distribution restructuring, and fat severance contracts gagging executives who know the embarrassing details of the fiasco.
The mind gropes in vain for a similar calamity in Chicago corporate history. The collapse of Continental Bank, maybe, but that didn't sink with the banners flying and the orchestra at full crescendo, the way Snapple did.
It's over now. The dust from the explosion is still hanging in the air, and as it settles a question takes shape:
How could a skilled, established marketer like Quaker Oats--holder, after all, of the oldest cereal trademark in the country, with marketing successes dangling from its belt like scalps, from Gatorade to granola bars to rice cakes, make such a huge and protracted blunder? Was Quaker a victim of circumstance? Was the problem something particular to Snapple itself, or to the beverage industry?
When solving any mystery, it's usually good to begin at the beginning. The marriage of Quaker and Snapple was certainly one of those May-December romances that so often lead to trouble.
Quaker, incorporated in 1877, was a child of the rural midwest, begun in Ravenna, Ohio, by a trio of stern, God-obsessed millers, Henry Parsons Crowell, Henry Seymour, and William Heston. They seized upon the image of the Quaker man and, though the Society of Friends petitioned Congress trying to stop them, made him one of the most recognized trademarks in the world. Marketing innovations were always a priority with the company. Quaker Oats was the first cereal sold in a package, as opposed to out of a barrel. As a promotion, Quaker Oats carved its logo into the white cliffs of Dover, and it took an act of Parliament to have it removed.
Snapple, on the other hand, was a child of the city. The company's actual birthplace, a nondescript storefront of green- painted brick at 125 First Avenue on New York's Lower East Side, is still there and still in business.
Now called Prana Foods, it's a modest co-op jammed with cardboard boxes of carrots, jars of wheat germ, containers of hijiki, and organic berries in plastic bins.
Refrigerated cases offer all-organic ice cream and bee pollen. And for fans of irony, a nice touch: the only beverages sold are R.W. Knudsen spritzers.
The store retains the low pressed-tin ceiling, painted white, that it must have had 50 years ago, when it was St. Mark's Appetizing, owned by a Russian immigrant named Meyer Greenberg.
"A hardworking, smart man," says his son Arnie, who went into the business after getting married in 1955. Some great business successes begin with a great vision; Snapple didn't. Arnie Greenberg went to work at his father's store because there was nothing better to do.
"I wanted to make a living," says Greenberg, 64, who prepared the pickles, sauerkraut, and smoked fish in the back while his father sold fruit from the display out front.
"His hands would stink of fish," remembers Wendy Kaufman, a childhood friend of Arnie Greenberg's son. "He always smelled of fish."
The neighborhood changed. The Jews of Arnie Greenberg's generation moved to Long Island. The Puerto Ricans came in. Greenberg started stocking beans, stocking rice. "Food for the Spanish trade," he says.
Then came what Greenberg still calls "the flower children." They liked beans and rice, too, and other trappings of what they considered the natural life. "They started asking for vitamins, so I put in a little shelf of vitamins," he says. "I saw it was a much better business than a bodega." St. Mark's Appetizing became Greenberg's Natural Foods.
Meyer Greenberg died. Arnie decided he needed partners, so he took in his Brooklyn buddy Leonard Marsh and Marsh's brother-in-law, an older man named Hyman Goldman.
"They were in the maintenance business--window cleaning," says Greenberg. "I really wanted some comfort. If I got sick, I wanted someone to fall back on."
Soon they were offering a full line of health foods, buying from suppliers all over the country and selling wholesale.
"I was buying in what I thought was quantity," Greenberg says. "I would buy 150 cases of juice, and sell what I didn't need" to other stores.
Fresh juices were hard to come by in bulk in the 1960s. To get good juice they had to use a source across the continent: L&A Juice in City of Industry, California. In 1972 Greenberg visited L&A's owner, Nat Langer. The two decided to form a company, Unadulterated Food Products, to sell juices nationwide. Langer owned 40 percent; the three New York friends owned the other 60 percent.
Natural food company stocks were hot in 1972. In Greenberg's memory, the plan was always to start the company, take it public, make a killing, then walk away. Bing, bang, boom.
In the memory of Langer's son, however, they were just selling juice, not building a public offering. "That may have been [Greenberg's] plan, but that was never discussed with my father," says Bruce Langer.
Intentions became moot because the stock market slumped just as the company was getting started. Unadulterated Foods could not be taken public. They were stuck with a company that three of the four partners weren't interested in.
"We were left with a little juice business no one was taking care of except God," says Greenberg. "We had no salespeople, a 5,000-square-foot warehouse, and if anybody wanted juice, they called us.
"After eight years, the business was worth a million dollars a year without anybody doing anything. We began paying attention to it."
The nature of the health food business is to offer variety. One person wants boysenberry juice. One wants apple. A third wants apple-boysenberry, and you have to keep everybody happy. Following this model, Unadulterated sold a blizzard of products--59 flavors and types at one point.
Natural sodas were becoming popular, so Unadulterated cooked up sodas and gave them distinctive names. Passion juice became Passion Supreme. Vanilla was Creme de Vanilla. Ginger ale was Montreal Ginger Ale.
Greenberg says that he himself dubbed their apple soda "Snapple," for "snappy apple." Bruce Langer remembers a forgotten distributor coining the fateful name during a brainstorming session: "He came up with the name off the cuff in a hotel room, kicking around ideas."
Whoever christened the product, there were problems with Snapple. In early batches the apple juice wasn't homogenized, so bottles would ferment and explode. And worse, it turned out that some guy in Texas owned the name "Snapple." Greenberg got on the phone.
"He says he had used the name a few years before, but it hadn't gone anywhere," says Greenberg. "It cost him $500 to register it, so he says, 'You can have it for $500, the cost of registration.'"
The Texan wasn't the only one to let go of Snapple cheaply. Nat Langer suspected his partners were cheating him, holding out on profits that he was due, and he decided to sell out. His son urged him to fight, to send in auditors and go over the books. But instead, in 1984 Langer accepted a "six-figure" sum for his 40 percent of the company. Exactly 10 years later, Langer's share would be worth a nine-figure sum: $680 million.
Langer became the Pete Best of the Snapple story. Once he left the party started. "All of a sudden," says Greenberg, "we had a business."
Did they ever. Particularly after 1987, when the company introduced a line of iced teas. "We made the first ready-to-drink iced tea that didn't taste like battery acid," says Greenberg. "It took three years to develop."
Sales, a paltry $3 million in 1986, swelled to $700 million by 1994, the brand's best year. During this time Snapple practically created a new niche of "new age" drinks--quirky products that appealed to young people--sold billions of dollars worth of fruit punch and teas, and by the mid-1990s accounted for more than a third of all the juice-based beverages sold.
Snapple didn't get there without marketing. Initially, Snapple hired a small advertising company. One of the first things the company did was recommend a young radio host who had just moved to New York from Washington, D.C.--Howard Stern.
"We didn't know who Howard Stern was," says Greenberg. "The advertising company said, 'Do us a favor and stay a year.'"
Snapple stayed a decade, in the van of Stern's camp followers as he invaded Philadelphia, Los Angeles, and other cities where his show was syndicated. Sure, Stern would mock the brand, but in doing so he could spool a 60-second spot into three or four minutes of comedy filler.
And yes, the other targets of Stern's attentions would complain bitterly to Snapple, the sponsor. But Snapple didn't care.
"He was nothing but good for us, very helpful in the development of Snapple," says Greenberg. "We took a lot of heat sometimes for him, from women's groups, gay groups, black groups, Jewish groups...but they all listened."
While Stern was conquering the big cities for Snapple, another radio host stepped forward to handle the great empty spaces in between. Rush Limbaugh had been singing the praises of Snapple gratis, apparently out of sincere affection for the stuff, for about six months when his advertising director realized that they should try getting paid for the plugs. He suggested that Snapple might toss some business their way as a reward for Limbaugh's loyalty.
"I did not know who Rush was," says Greenberg. But the price was attractive. "Practically nothing," Greenberg remembers. Snapple hired Rush Limbaugh.
Limbaugh, almost needless to say, feels personally responsible for the success of the brand, a fact that would be better known were it not for the powerful media conspiracy and its intricate web of lies arrayed against him.
"In all these stories of what has happened to Snapple, you can't find any reference to the fact that they used to advertise nationally on this program," Limbaugh said on the air earlier this year. "And when that stopped, so went national sales. And you people all know it."
Besides fueling sales, Snapple advertisements on Limbaugh's program "did generate a lot of hate," according to Greenberg, apparently by inflaming liberal Snapple drinkers who loathed Limbaugh and hated the thought that every time they bought a Mango Madness they were lining his pockets.
"That's where all the rumors came from," Greenberg says, "that Snapple was antiabortion, that we were part of the Ku Klux Klan, that a nickel from every bottle went to the KKK..." The situation got so out of hand that Snapple had to run advertisements in California newspapers denying connections to Operation Rescue and the Klan.
The rumors capped what had been a yearlong run for Snapple, a dash for market share sparked, ironically, by Coca-Cola and Pepsi, which two years earlier had finally made their first sluggish acknowledgment of the exploding demand for bottled ice tea and wacky fruit juices.
When Snapple finally began blipping on the radar screens in Atlanta and New Jersey, the Big Two--like the dowager European nations in 1913--responded to the threat by forging alliances, in this case with the smaller Balkan beverage companies. Pepsi made a distribution deal with Lipton and Coke made a deal with Nestea. But instead of hurting Snapple, this created an opportunity. Formerly distributed by inferior networks--the Royal Crown colas and Canada Dry ginger ales of the world--Snapple's rivals found themselves ushered into the rarefied air of the Coke and Pepsi distribution systems.
Which left a void for those third-tier distributors that now had no iced teas or wacky fruit juices to deliver. "There was a vacancy open and we were there to step in," says Greenberg.
Corresponding with Snapple's heartland infiltration was the first national ad campaign, featuring Greenberg's family friend, Wendy Kaufman, by now grown into a chatty Long Island butterball. Kaufman's instantaneous rise from obscure shipping clerk to high-paid media darling is an amazing tale of propitious fate, as if the Pillsbury Doughboy had started out as an albino dwarf in the mailroom.
After a stint as a dispatcher in the family trucking business, Kaufman got a job at Snapple in 1991, starting in the order department. "Arnie thought it was a great place to learn the business, to learn the flavors," says Kaufman. She didn't stay in the order department long, however. She helped with a golf benefit, and found herself organizing Snapple publicity events.
Somebody thought to direct the trickle of fan mail Snapple was receiving to Kaufman. And a big Freudian gong went off in her head. "When I was a young child I fell in love with The Brady Bunch," says Kaufman, 38. "That's the show that rang my bell. I fell in love with Greg Brady--the actor Barry Williams--and I wrote my one and only fan letter to Barry Williams. He never wrote me back. That taught me my first lesson about writing to somebody you care about and not being responded to. Then I noticed letters coming in--people taking the time to write to us. They wanted a connection....I knew that I was going to connect and respond to every single person who wanted to be friends with us. I didn't do it to be in commercials, because I didn't know there would be commercials."
But there would be. Those were now the job of New York ad agency Kirshenbaum Bond & Partners, hired by Snapple to craft its first national ads. During their obligatory get-to-know-our-client tour of Snapple's Long Island headquarters, agency head Richard Kirshenbaum ran across Wendy. Following kismet's guiding hand, he'd known her casually when both were students at Syracuse University.
They got to talking. Kaufman showed her letters to Kirshenbaum. Look, she said, look at how loyal our customers are. Kirshenbaum, in one of those flashes of insight that sparkle through marketing history, realized that the letters just might be the perfect bit of weird verite to plug his new client. They didn't have the money to buy a big star. They couldn't afford a lot of computer postproduction.
But they could use this ovoid little woman, reading devoted letters to Snapple in her ringing Lawnguyland accent. It took a bit of salesmanship to the owners--doesn't it always? They had someone closer to Pamela Anderson in mind.
To cap his pitch, Kirshenbaum had cardboard cutouts made of Oprah Winfrey and Roseanne. Were these not the most famous, beloved women in the country? Why not a size 22 Snapple lady?
So Kaufman set out on her goodwill tour, answering readers' letters and starring in 36 whimsical, award-winning TV ads between 1993 and 1996. Kaufman attended the christening in New Jersey of a baby named Ian Snapple Brennan. She accompanied a high school boy to his prom. She danced with the Los Angeles Classical Ballet. When a retired army colonel in Kentucky wrote in to praise Snapple as "perhaps the only good that has ever come out of New York," Kaufman showed up at his home, unannounced, with former mayor Ed Koch and a camera crew in tow.
Mail grew to almost 500 letters a day. Snapple hired another woman named Wendy Kaufman so she could answer mail, too, and no one would be the wiser. Snapple also developed 15 or 20 form letters to create the illusion of personal replies. "We had a really quirky, funny letter that answered every type of letter," Kaufman recalls. "If somebody wanted a distributorship there was a distributorship letter."
By this time, Snapple was already a public company. In early 1992 the three original owners had decided to do what they had wanted to do back in 1972: cash out. They sold 70 percent of the business to the Thomas H. Lee Company, a Boston investment firm, for $145 million. "More money than I ever thought existed," says Greenberg. The three founders kept 30 percent because they wanted a hand in running the company, Greenberg says.
In December 1992, Lee took the company public at $5 a current share. The stock market devoured the offering. Snapple stock went up 45 percent by the end of the first day it was traded. In the coming months it would split twice and peak at over $32.25, and Snapple insiders would decide to cash out to the tune of $200 million.
It was a bubble, of course. Snapple owned no factories--it contracted out to various manufacturers to produce the drink. There was no secret recipe. It was just a brand, albeit a brand whose sales had doubled four years in a row, from 1989 to 1993. Now it was looking to sell nearly $700 million worth of product in 1994 and hoping to break $1 billion in sales in 1995.
Sales never got to that billion-dollar mark. While Wall Street took those four doubling yearly sales figures and extrapolated an arrow to the heavens, the fact is that 1994 was not the beginning of Snapple's success story but the peak. By that summer, the wheels had begun to come off the Snapple growth wagon. Second-quarter profits rose, but well below Wall Street's giddy expectations. That doesn't sound like a death knell, but in Wall Street terms image is everything.
On August 3, 1994, the day Snapple announced its profitable-yet-disappointing figures, its stock hemorrhaged, dropping $5.31, or 26 percent of its value. It bottomed out October 5 at $11.50. The Snapple Beverage Company was now a bargain.
Enter Quaker Oats, a Baby Huey with cash hanging out of its pockets. Quaker paid $1,700,000,000 for the company--$14 a share. To give an idea of how inflated that price was, the 22.5 percent of Snapple the original three founders still retained cost Quaker $383 million, more than twice what Lee had paid for 70 percent of the company just two years before.
Conventional wisdom at the time estimated that Snapple was worth $700 million. Quaker had paid $1 billion too much.
Why? It's not difficult to see Quaker's motivation. It already had one wildly successful drink--Gatorade. Adding Snapple would put it into the big leagues with Coke and Pepsi. Snapple was still largely a regional product--80 percent of sales were on the east and west coasts. A bit of good old-fashioned Quaker brand management would put Snapple in every Winn-Dixie and Wal-Mart in Middle America. While Quaker might seem a big enough corporation to us plebes in the trenches, it's only 274 in the Fortune 500. Coke is number 58, Pepsico 21.
And besides, the stock was about a third of what it had been earlier in the year. Bargain time!
While the popular perception is that Snapple died the moment Quaker touched it, the truth is it was already in a nosedive. Five days before the sale Snapple reported profits dropping 7.4 percent in the third quarter of 1994.
None of the warning bells was heeded at Quaker, however. Credit that to William Smithburg, the testosterone-charged chairman and CEO of Quaker at the time, who enjoyed helicopter skiing and described customers reaching for his beverage products as "thirst occasions."
Smithburg was the man who had bought Gatorade from Stokely-Van Camp in 1983 when the beverage was a marginal rehydration supplement to athletes--practically a medicine--and made it dominate the sports-drink market it created (mimicking, ironically, the company's initial 19th-century success in marketing oats as a cereal for everybody at a time when oats were considered suitable food only for babies, invalids, and horses).
Snapple would be Smithburg's next liquid victory.
"We didn't think it would be good to wait," he said of the purchase that Business Week deemed was "dragging Quaker over a cliff."
That was the public face. But what happened in private? Why didn't Quaker put the sale on hold--wait and see what direction the brand was going--or at least bargain for a lower price based on the disappointing new figures?
Quaker had done so before. Just the previous year, in 1993, it had come within a hairbreadth of signing a deal with Coca- Cola to distribute Gatorade outside the United States. Coke, however, a hard bargainer if ever there was one, kept fiddling with the agreement, insisting on alterations to the terms. Quaker ended up walking away from the deal.
Why not now, when so much more than Coke's 11th-hour changes were at stake? Any pre-Snapple executives who remain at Quaker aren't talking, and those axed in the wake of the debacle are gagged by fat postemployment contracts.
"Does Quaker know you are doing this?" asks Philip Marineau, former Quaker president and onetime heir apparent to Smithburg, now selling milk for Dean Foods. He says his agreement with Quaker makes it "unethical" for him to speak on the subject (insiders say he got $2 million to remind him of his moral prerogatives). Margaret Stender, then marketing vice president for Snapple (and winner of the greatest-Snapple-related-hubris award for her statement, "We're absolutely confident we're going to fix Snapple"), now at Ameritech, and Don Uzzi, who was Snapple president and is now at Sunbeam, both refuse comment.
"When they get fired Quaker takes very good care of them," says Greenberg.
A Quaker executive shown the gate without the comfort of a hefty postemployment mouth cork, but still desiring to speak off the record to avoid the corporate mark of the squealer, attributes the company's blindered insistence on going through with the sale to "fear"--"fear of other soft drink companies coming in and buying Snapple, fear of shareholder lawsuits."
The company may have difficulty expressing whatever qualms it had, but the business community and stock market were more forthcoming. The sale was hailed immediately as a debacle in the business press, and that opinion was confirmed in the democracy of Wall Street. The day the sale was announced Quaker stock fell 10 percent.
If Snapple was sliding when Quaker bought it, then its new owner compounded the problem by bungling its handling of the brand from day one, beginning with the distributors. A big part of the Snapple success had come from its 300 independent distributors, on whom Snapple lavished 33 percent of profits, twice the industry average. In return, the distributors pushed product like madmen.
Quaker's game plan was to crack Snapple's ironclad distribution contracts--some had no expiration dates--by dangling the lure of Gatorade. The distributors would surrender big supermarkets and chain stores. In return, they would be rewarded with Gatorade to carry on the routes they were permitted to retain. Be Like Mike.
But the distributors--to Quaker's utter bogglement--balked at the offer. Why give up routes for the privilege of abandoning Snapple space on their trucks for the less profitable Gatorade? It made no sense. Quaker had failed Business 101--they assumed the distributors would act in Quaker's best interest, not in their own.
"They knew the distributors had contracts," says Greenberg. "They thought they could override them." They could, but it would cost millions, and waste the better part of a year. And that was just the distribution contracts. The bottlers also had contracts, which cost Quaker $30 million more to buy out.
The distribution mess got so bad that Snapple inventory started to pile up, and had to be dumped at bargain outlets and even in landfills. Nothing erodes a quirky brand's cachet quite like letting customers see it stacked in dusty pallets at the Dollar Store.
Snapple lost $75 million in 1995.
Old-time Snapple hands might have helped avoid the situation, but there weren't any left. "What they did do was cleaned out the whole Snapple staff," Greenberg says. "Within a few months there wasn't anybody from Snapple there. [The Quaker attitude was,] 'We know how to do it better--you guys are the little guy. Good-bye.'"
Meanwhile, as Quaker was duking it out with the distributors and clear-cutting the Snapple staff, advertising atrophied. Snapple had let long-term planning hang in the months leading up to the sale, and Quaker, wrestling with the distributors, wasn't about to make any bold moves.
Not only was new advertising on hold, but old spokespeople were let go. Howard Stern mocked singing star Selena after her death, and Texas Latinos reacted by boycotting Gatorade (there wasn't much Snapple in Texas to boycott). Snapple president Don Uzzi flew down to Lubbock to pacify the locals, summarily firing Stern while Stern was on vacation.
Rush Limbaugh was canned, apparently on general principles. And Wendy Kaufman...
Just why was Wendy Kaufman fired, anyhow? That's a matter of debate. The Snapple lady campaign was revived briefly in the summer of 1995, but dropped in early 1996 after it failed to immediately stem the brand's free fall. Despite being contractually obligated to pay her what a Quaker insider said was close to $250,000 a year--and despite her recognition rating somewhere between the Energizer Bunny and Jesus--Kaufman was mothballed.
The code phrase was that she was "too ethnic" to play in the coveted Middle America. "Not everyone in the country starts the morning with a bagel," said Tom Pirko, a beverage consultant and "key" adviser to Quaker on all matters Snapple. You don't need a degree in semiotics to find a whiff of anti-Semitism in a statement like that.
"To me, that is an analyst saying 'Too Jewish,'" says Toby Axelrod, an editor at the Jewish Week in New York. "A bagel is not Long Island. A bagel is Jewish."
Kaufman, while saying that she "would not want to point a finger in any direction," admits that Axelrod's answer "would maybe be mine" too. She does wonder if Quaker might have underestimated the country's ability to absorb New York, if not Jewish, cultural figures. "I mean, Seinfeld does well," she says. "The Nanny does just fine. Why couldn't I?"
What bothers Kaufman more than being dumped from the ads, whatever the reason ("business is business," she says), is that Quaker then stopped forwarding her the fan letters that started it all. "I was still getting 50 letters a week addressed to me, which they couldn't read," she says. "They couldn't read what I was writing back, and they got nervous....So Quaker took this away from me. They don't trust people."
Kaufman's absence might have been less keenly felt--she was, after all, perhaps the most grating spokesperson since Clara Peller--had her replacement not tanked so quickly. When Quaker finally got a campaign on the air, it offered "Threedom Equals Freedom," a slogan presented in $40 million worth of ads both bizarre and notably white-bread. The idea behind "Threedom," launched in the spring of 1996, was to play on the company's lofty aspirations to be the number three beverage company after Coke and Pepsi. Sort of Avis's "We Try Harder" on speed.
Snapple's position vis-a-vis its competitors wasn't of vital concern to the beverage-quaffing public. The big-budget ads--one was directed by Spike Lee--were slick enough. The New York Times called the commercials "evocative of Coke or Pepsi ads."
But they just confused people and didn't sell any Snapple. Sales kept sliding, and the ads were yanked after two months. Quaker fired Kirshenbaum and brought in advertising giant Foote, Cone & Belding, which also did the commercials for Gatorade.
FCB's hot new idea, in the summer of 1996, was to hand out free Snapple on the street. The only thing more damaging to the brand's counterculture status than having stacks of old bottles pile up at discount stores was having them given away from the back of trucks parked near the el tracks. Smithburg even rolled up his French cuffs and handed out a few free bottles himself. You could smell the desperation like hot tar.
"Whoever came up with the idea--I don't think they should be fired," said cofounder Leonard Marsh in Newsday. "I think they should be shot."
Snapple sales continued to collapse. Quaker publicists took to emphasizing the raw volume of sales and not their decline, which would be sort of like Chinese officials pointing out during a famine that their country has more people who haven't died of starvation than any other nation.
The final Quaker-directed Snapple campaign came in January 1997. It was aimed to push Diet Snapple. In the ads, a multiethnic array of customer/actors were shown making whimsical suggestions to Snapple, which were then acted out. Gee, wacky customer suggestions to Snapple being acted out--wonder where they got that idea from?
Someone at Quaker should have given one of those lush severance gags to Kaufman, who has no compunction about calling the ads an obvious rip-off. "I felt embarrassed for Quaker Oats that they could put out such a horrible, horrible commercial," she says. "To go through what they went through, to toss everything out. Then go right back to the same thing, except not as authentic and fun as we were doing. What a waste of time and money!"
The banner of defeat was officially run up the flagpole in late March, as Quaker announced it was sending Snapple back to the New York from whence it came, selling the brand to Triarc for $300 million, or $1.4 billion less than Quaker had paid for it just 28 months before.
The deal that was supposed to put Quaker in league with Coke and Pepsi in the end sent it running to be bailed out by RC Cola, which is manufactured, along with Diet Rite and Mistic, by Triarc. Smithburg, who had been denied his annual bonus for the previous two years as punishment for not fixing Snapple, pronounced the sale "in the shareholders' interest" and resigned shortly thereafter.
"I'm very proud of these 16 years, despite Snapple," he said. One shareholder pointed out that the $1.4 billion loss on Snapple nearly wiped out the gain to the company by the creation of the Gatorade franchise.
Analysts estimated that Snapple was worth as much as $600 million at the time of the sale. Quaker had burned itself coming and going, not only paying at least twice as much as the company was worth in 1994, but selling it for half its value in 1997. No matter. The nightmare was finally over. Quaker stocks leaped for joy, skyrocketing 25 cents at news of the sale.
Business schools will be sifting through the wreckage of this story for decades to come, encouraging students to identify the proper parties to pickle in blame. Quaker, of course, will forever be Dope Numero Uno, viewed as taking a brash and beloved consumer success story and, through sheer ineptness, killing it. The boy who bought a puppy and then forgot to feed it.
"Quaker tried to change the image of the brand," says John Sicher, of Beverage Digest. "Snapple was marketed as a quirky alternative. Quaker's first major advertising campaign was a bad misjudgment. The consumer does not give a hoot whether Snapple is one or two or three or four in market share."
But Quaker will not shoulder the entirety of the blame. As big as Quaker is, factors outside of the company's control were also at work. As Quaker was buying Snapple, Sicher points out, the market for more expensive brewed ice teas such as Snapple declined as cheaper mixed ice teas, such as Arizona, improved their taste.
"Pepsi and Coke have brewed teas, and the decline in Pepsi and Coke's teas mirrored the decline of Snapple," says Sicher. In fact, sales of all fruit drinks and premium teas dropped up to 15 percent in 1995.
"Here's what happened, in my opinion," says Richard Kirshenbaum, who created the Snapple lady ads. "Quaker Oats paid a premium for a product and a brand image which, at the end of the day, they did not understand or even like. From the beginning they started dismantling a lot of the things they had bought. They wanted to put this entrepreneurial, out-of-the-box company into the brand-management system at Quaker Oats. They wanted to put it into corporate America, and it was never going to happen. Not that the people at Quaker Oats weren't smart. But the cultures were so different."
And that dismantling may not be over. The same Quaker insider who attributed the Snapple purchase to "fear" said that he expected Gatorade to be spun off now as a separate company.
"The goal is to get Quaker stock to $50," he said. "That's what this is all about."
Bruce Langer doesn't blame Quaker as much as the original Snapple owners. He believes that Snapple was a Potemkin village designed by the owners to look attractive. Quaker was just the patsy.
"The idea was to hype it and sell it off. Not because it is self-sustaining. To make it look bigger than it is and then get out of it," says Langer, who feels the partners outsmarted Quaker. "You don't think that when they sold it, they knew?"
If the three partners fooled Quaker, then they were helped by a business climate that focuses not on the soundness of a business but on the steady growth of its stock price. At the time Quaker bought Snapple, Snapple was a bargain, relatively, despite the $1.7 billion price tag. The shareholders filing lawsuits attempting to stop the sale were not Quaker shareholders but Snapple shareholders, who felt the company was being let go for a song.
Of course Snapple is still around, and it may yet prosper under its new masters. One of the first things that Triarc CEO Michael Weinstein did after buying Snapple was to meet with Wendy Kaufman to discuss her return to the brand.
As the onetime voice of Snapple, perhaps Wendy deserves the final word on the matter.
Hey Wendy, what did Quaker do wrong?
"They killed themselves," she says. "Coming in with such egos. I never saw anything like this. Who can deal with people who don't listen to anything you have to say?
"Nobody there has an opinion. They're so scared to take a stand, to make a decision. We used to make them all the time. In corporate America everybody's so worried about politics. You have to have passion. It transcends worry. They didn't buy Gatorade. They didn't buy a staid, normal brand. They bought Snapple, which was mostly about personality. They bought a personality only to kill it. What was the point?" o
Art accompanying story in printed newspaper (not available in this archive): illustration by Mike Werner.