A Business Analysis of the Nantucket Nectars Company

Nantucket Nectars was established by Top First and Tom Scott in 1985 under the original brand of Allserve, “a floating 7-Eleven.” Before entering the beverage segment, the company Was a convenience store serving boats in Nantucket. After employing unique marketing and sales strategies and offering a competitive product-high quality, all natural juice–Nantucket Nectars become the interests of a number of bidders. The present Harvard Business School case discusses a then-difficult decision the founders were forced to make. They could maintain status quo, sell a part or the entirety of the company or undergo an IPO.

If they sell, the company founders pondered potential concerns: how can they keep the negotiation process discreet so not to disturb their employees? How many bidders should they engage with and who should set the lowest bid? And, would selling the company hinder the lax working environment or the stable management structure. First and Scott were also worried that should they sell to a big company, they would lose their”memorable story” and with it the loyalty of their customers.

As First and Scott were quoted saying, “they have made every mistake in the book” growing and scaling up  heir company. In fact, if they knew how unattractive the dynamics of the New Age beverage business was, they would not even begin their own company. Yet, through rather unconventional methods such as promotional events having employees dress up as fruits and delivering and stocking their own product, the founders were able to break through in the industry.

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Despite the hard work and serendipity, the two Toms eventually did sell the company. Nantucket Nectars was sold to Ocean Spray in 1997. I believe this was the right choice for two main reasons. Nantucket
Nectars did have a competitive advantage in the product they have offered.

And, with the Super Nectars they excelled at product innovation even when products where scarce (i.e. cranberries in 1995). However, Nantucket Nectars insisted in quality. The used 100 percent real juice and used only real can sugar. Although this produced noticeable differentiation on the shelves in the stores, it was also a problem in my opinion. In 1996, 55 percent of all New Age beverages were sold in supermarkets and 35 percent in convenience stores. Nantucket Nectars only controlled one percent of all channels in supermarkets and only 6 percent in convenience stores, which all together accounts for less than 1/2 percent of the total beverage market. Their largest customers were delis, educational institutions and health and gourmet stores. Although the company was growing ever year, their market share was relatively insignificant.

Second, the company had a number of valuations, including great product, brand value, experience with single-serve business, access to 18-34 market, a compelling story and more. Figuring out what value Nantucket Nectars was to their competitors and bidders was difficult, as
First and Scott explained themselves. I think although Nantucket Nectars did hold a certain value in the industry, it would become more profitable in the hands of larger players. A company like Ocean Spray has access to more distribution channels and more shelf space in supermarkets, where it really counts. If anything can be learned from the Snapple deal (pg. 9) is that distributors and marketing strategies play a big role in the acquisition process. Should Ocean Spray maintain the integrity of Nantucket Nectars, they can dispel the fears of its founder and maintain the marketing that the two Toms have worked at for years. I think the biggest fear that the founders expressed in the case was concerning their employees. The transaction not only put the 100 employees at risk, but also the very structure of the day-to-day work environment. The employees enjoyed a non-formal dress code and could approach their bosses at any time freely.