Chapter 2 Nudie - A Merger That Failed WRITTEN BY SHYAM JAYASINGHE & MAX COULTHARD

Background Nudie was launched in 2003 in Sydney, New South Wales, Australia by Tim Pethick. The company has since come a long way from its humble beginnings. By providing 'a day's fruit in every bottle', Nudie was able to develop a strong brand that connected to consumers internationally. By 2004, Nudie was considered one of the most promising brands in Australia's fresh fruit juice market. Its products penetrated longstanding competition, and in only a few years Nudie found itself voted by brandchannel as one of the most influential brands in the Asia/Pacific region (Camille 2006). Following a period of exponential growth, Nudie considered internationalising its market reach. The process was approached firstly by exporting its products to sales outlets abroad and secondly by planning a merger with Pulp Juice. Its export strategy focused on New Zealand, Singapore and Hong Kong because of their cultural closeness and geographic proximity. Due to a number of reasons, however, the merger between Nudie and Pulp never occurred. Market At the time of Nudie's inception the Australian domestic juice market was undifferentiated and highly competitive. The two largest players in the market were Berri and Golden Circle with a combined market share of around 60% of the juice industry worth over $1 billion annually. Nudie's strategy was to create a niche market for itself. As a result, the growth rate of Nudie was exceptional, with an average growth of 35% per year for the first two years and a constant average of 18% thereafter. This led to the company being recognised as the fastest growing fruit juice company in Australia within the first financial year sales were over $12 million. Following Nudie's definition of this new niche market, new competitors such as Melbourne-based Emma and Toms and New Zealand company Charlie's entered. Both these companies copied Nudie's flavours and styles of products, yet were not able to compete with the Nudie brand. Products As Nudie was pure fruit without preservatives or additives, it required constant refrigeration. This was the main reason competitors found it hard to compete. It required expertise in

both product and supply chain management, making it very costly to reach the consumer. No added preservatives meant shelf life for the products was very short. The expiry date was only 28 days from the date of production compared to six months for other products. In addition to the existing range, Nudie was approached in December 2005 by Nestle to create frozen nudies called 'nudie n'ices' for two years under license. By 2009, Nudie's product range included six flavours of crushies, three flavours of juices, and two flavours of smoothies (Nudie 2009). Marketing and culture The marketing campaign for the company was conducted mainly through its website. The site contained links to upcoming activities such as recruitment drives and other gimmicks including the Nudie balloon launch, the yogi launch, and other events that Nudie was either participating in or hosting. The website was very youth oriented in design. The marketing campaign encouraged people to get 'out on the ground'. The distinctive Nudie figure, special Nudie vans to deliver its products, outdoor marketing campaigns and 'pester power' were employed to distribute products and create a 'wow' effect in consumers' minds. Fans of the product could also download 'petitions' from the Nudie website to ask their local store, cafe or office to stock the product. There was also a Nudie club. A simple label was designed to stir curiosity, encouraging customers to embark on a journey of discovery. Business owner Tim Pethnick felt that consumers wanted a product that was a bit funny, irreverent and cheeky (Camille 2006). Hence, the name Nudie was born. The name Nudie symbolising pure, unadorned fruit juice was matched by a cute logo and reinforced by its cars, hot air balloons and other merchandise. Nudie's culture of being fun loving, energetic, dynamic, fruit loving, socially responsible, young and passionate was totally different to the other conservative brands around it. The philosophy permeated the entire organisation and reflected in everything they did. The internationalisation of Nudie As Nudie grew, the company received a number of enquiries from overseas interests keen to explore international opportunities (Wiland 2004). This tied in well with Nudie's expansion plans, as the strategy was initially to develop the domestic market and then shift to international markets. The company secured its first export order, worth more than $100,000, after participating in Austrade's 'What's New' stand at the Food and Hotel Asia trade fair in Singapore, April 2004. It then began exporting to Hong Kong, New Zealand and

Singapore. Mathew Barlow, international 'nudie', said the company got an early taste for export. 'When nudie was launched, we received plenty of international interest,' he said. 'New Zealand and Singapore are great export locations for us at the moment because they have similar trading regulations, they have a sophisticated English speaking market, cafe and deli culture, and because there's no major trade or packaging restrictions/ Mr Barlow said. 'At the moment, our short shelf life means that we have to airfreight exports. Ideally, we'd like to have offshore plants in the future and to adapt the drink using locally- available fruits.' The proposed merger that failed Nudie was then approached by Pulp Juice to enter into a merger. Pulp Juice and its juice bar chains were owned by the Richard Branson backed Signature Brands (SBL). SBL owned and managed other brands including Koala Blue, Brian Rochford, and Ozi Varmints. At the time, Pulp Juice (and its parent company Pulp Health) consisted of 20 juice bars in Australia and a presence in New Zealand. Additionally, 75 branded juice bars had been launched across the Persian Gulf region, making it the first international juice company to enter the markets of the UAE, Saudi Arabia, Qatar, Oman, Turkey, Cyprus and Egypt (Nudie,2009). Pulp was also in the process of signing an agreement with Kahala, a 'healthy' restaurant chain in the US, which would give it over 50 licences to operate quick service restaurants internationally. This would also provide them with access to more than 1,000 restaurants already owned by Kahala. Under the proposed agreement, the companies planned to amalgamate Pulp Juice bars with Nudie to create the leading healthy premium juice company. Pulp was chosen because it had a similar business approach and was committed to providing the time and resources required to promote Nudie. Its expansion goals and strategy were also well matched to Nudie's. The idea was that the newly created juice company would retain both the Pulp and Nudie brand names. Nudie would be responsible for developing shop fronts for the sale of juice, while Pulp would concentrate on health foods including soups and sandwiches. Nudie was to have naming rights and control the new entity (Saccotelli 2004). However, negotiations slowed as the parties could not agree on their own valuations of each party's contributions. The merger plans were finally withdrawn by 'mutual agreement', but the two companies continued to explore potential areas of mutual interest, such as a possible brand alliance in certain international markets in the future. Both organisations believed that synergy could still be created between their

brands and businesses. Life after the negotiations After rapid growth, both companies found themselves in difficult financial positions. Nudie's integrity came into question over allegations of providing false product information. It was ordered to publish corrective ads over claims that its Rosie Ruby drink consisted of 100% cranberry cloudy juice, and that its Rosie Blue drink was solely cranberry and blueberry juice. The fact was that both products contained only about 20% of those juices, with the majority of the drink contents made up of reconstituted apple juice. Another problem Nudie faced came from having too much success too quickly, leading to a shortfall of working capital and its opening up to external investors (Camille 2006). According to Tim Pethick, this was the period when the company moved from a 'controlled, vision-led environment' to one where input from investors carried more weight than his own personal views. Tim found that his methods of running the business were criticised, and that the organisation's management methods were being changed. Subsequently, Pethick was forced to resign as CEO. Pulp also had its own problems, including being taken to court in relation to underpaying its employees. The ensuing publicity impacted on the general public's perception of the company, which in turn caused its stock price to fall (Smedley 2004). Moreover, Signature Brands had been losing money since its stock market listing, culminating in the announcement that it was negotiating the sale, closure or franchising of individual Pulp outlets in a bid to reduce operating costs. Finally, all employees were made redundant after Pulp's parent company, Signature Brands, entered into voluntary administration in 2006. As a direct result, the group's Pulp Juice bar chain ceased to exist. Despite the potential synergies that may have existed between the two companies, both organisations held different organisational structures and values. Nudie was marketed as a fun loving, energetic, dynamic, fruit loving, young and socially responsible brand, while Pulp had been in the business much longer and had worked under a large bureaucratic organisational umbrella. Questions 1. What were the advantages and disadvantages of Nudie's strategy for internationalisation? What would you do differently? 2. Why did the merger between Nudie and Pulp fail? What are the key characteristics which require specific attention when contemplating a merger? 3. Explain the importance of synergy between two brands. How

would you analyse a potential partner's brand value? References Camille, H 2006, Nudie's Tim Pethick gives branding a squeeze, retrieved 5 May 2009 from <http://www.dynamicbusiness.com/articles/articles-entrepreneurprofile/Nudies-tim- pethick-gives-branding-a-squeeze.html>. Nudie 2009, Nudie Products, retrieved 20 December 2009 from http://www.nudie.com.au/>. Nudie Foods Australia, Nudie Foods Australia and Signature Brands cancel merger plans, retrieved 11 May 2009 from <http://www.gohospitality.com.aU/c/Nudie-Foods-Australia/ Nudie-Foods-Australia-and-Signature-Brands-cancel-merger-plansn833294>. Saccotelli, L 2004, Nudie juice rises from the ashes, retrieved 11 May 2009 from <http://www.abc.net.au/insidebusiness/content/2004/sll51139.htm .> Smedley, D 2004, Pulp and Nudie merger off, retrieved 10 May 2009 from <http://www.hospitalitymagazine.com.au/ Article/Pulp-and-Nudiemerger-off/236525.aspx>. Wiland, E 2004, Nudie in smoothie move, retrieved 10 May 2009 from <http://www.muzink.com/afrnproducts?articleid=259>.