updated 6/22/2006 2:56:30 PM ET 2006-06-22T18:56:30

Coca-Cola Co. and Nestle SA are reported to be in talks to restructure the partnership that distributes Nestea ice teas, which have been losing market share, an industry newsletter reports.

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Multiple industry sources told Beverage Digest that Coke and Nestle are discussing the future of Beverage Partners Worldwide, which markets Nestea iced teas and coffees worldwide.

"As part of our ongoing relationship, we are continuously in discussions with Nestle to look for ways to enhance our partnership and maximize growth opportunities within these important beverage categories," said Crystal Walker, a Coke spokeswoman.

Ready-to-drink teas and coffees account for less than 5 percent of Coke's total global volume.

In the United States, Nestea sales fell 16.4 percent in the first quarter from the same period last year, according to Beverage Digest data. However, sales of all bottled teas were up 28.4 percent during the same period, the newsletter said.

Nestea ranks fourth in the iced tea category, which is led by privately held Arizona Beverage Co.'s Arizona Ice Tea.

Under the current partnership terms, Coke faces restrictions in introducing coffee and tea products outside of the venture. However, the Atlanta-based beverage company is making moves to broaden its noncarbonated product offerings.

For example, the company's North American unit is working with Campbell Soup Co. to bring Godiva Belgian Blends to market next month. The launch is complicated by Coke's inability to call the product a coffee, Morgan Stanley analyst Bill Pecoriello said in a recent research note.

The Nestea partnership also has been slow to move into fast-growing areas of the category such as green and white teas, Pecoriello said. Coke will be restaging the Nestea brand this summer with four new products, including green teas.

The Coke-Nestle partnership also will launch Gold Peak, a premium tea, next month, Coke spokesman Ray Crockett said.

In one potential scenario, Nestle could take back the Nestea rights, with Coke introducing its own brands in the United States, Pecoriello said in the recent note. He added that outside the United States, the venture could continue to operate in its current form.

Coke has been unable to create a coffee brand to compete with Starbucks Frappucino and Starbucks DoubleShot, which dominate the category. The Starbucks drinks are marketed by the North American Coffee Partnership, a venture of Starbucks Coffee Co., of Seattle, and PepsiCo Inc., of Purchase, N.Y.

Coca-Cola did recently launch Blak, a mixture of its signature soda and coffee.

Frustrated by a lack of beverage options in the bottled coffee category, some Coke bottlers have begun exploring ways to enter the segment on their own.

Coca-Cola Bottling Co. Consolidated, of Charlotte, N.C., has formed a new unit, ByB Brands Inc., to market drinks such as Cinnabon coffee in North America. Cinnabon is currently being sold in Consolidated's territory, but the bottler is looking into distribution deals to market the product nationally.

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