For 30 years, a big can of the wildly popular AriZona iced tea has cost 99 cents. How do they do it? We find out.
Since AriZona iced tea launched in 1994, a can of the stuff has cost 99 cents. It’s a business anomaly, yet one that has turned the company into a multibillion-dollar outfit. And the owner vows to keep his iced tea at that price even during the worst inflation the United States has seen in 40 years, which is eating into the company’s revenue.
Today, we get into this odd business ideology.
Host: Gustavo Arellano
Guest: L.A. Times business reporter Sam Dean
More reading:
As inflation soars, how is AriZona iced tea still 99 cents?
Gustavo: Arizona ice tea. You gotta know it.
You know, it's that tall can of ice tea that has so much turquoise and pastel as a color scheme, it looks like a kid went to school on it.
And that's not even the craziest thing about it. That would be the price tag of Arizona ice tea, printed right on the can: 99 cents.
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It cost that much when it came on the nineties, it cost that much when I went to college in the two thousands, it cost that much when my producers were in high school last decade. And it's still 99 cents even now, even as we're going through the worst price hikes in decades.
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Do I like Arizona ice tea? It’s okay. Did I buy this can to see if it would actually only cost me 99 cents? Yes. Yes, I did that.
People always talking about, you know, the gas price right now, they're going crazy. And people are like, Hey, everything goes up. Not everything.
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Not everything…
Gustavo: And the owner of Arizona ice tea, he vows to keep that 99 // cent price, as long as he's alive.
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Gustavo: I'm Gustavo Arellano, you're listening to the times daily news from the LA times.
Gustavo: It's Wednesday, April 20th, 2022. Today we….yup, I gotta say this, spill the tea on how Arizona ice tea keeps its costs so low while everything else is feeling inflation. I mean, how? How do they keep it like that and how this can be a lesson for other companies… maybe.
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Gustavo: Joining me to talk about this anomaly is my LA Times colleague, business reporter, Sam Dean. Sam, welcome to THE TIMES.
Sam: Thanks for having me.
Gustavo: So do you even like AriZona Iced Tea?
Sam: I mean, yeah. I, uh, I don't drink a ton of it these days, but there was an era in my life where I had like three or four cans a week you know?
Gustavo: Yeah…I’m not a fan…but I know tons of people just love it.
Sam: Yeah, I mean, it's, it's kind of a phenomenon. I mean, they have a branded gear, you can buy like Adidas with Arizona branding. And the, the stats for the market-- that Arizona has about 16% of the tea market, the ready to drink tea // second only to like Pepsi Co., which has Lipton, Pure Leaf and Brisk. So they're the only like small, independent company that's really dominating. And that's that's like 255 million gallons of Arizona iced tea that they sold in 2020, according to this like market research from Beverage Marketing Corp., and that's enough to fill Echo Park lake 10 times over.
Gustavo: Yeah, that's, that's a lot of tea, like I said, I'm not the biggest fan, but I just love the color scheme, which id like psychedelic roadrunner style. And then that price point: 99 cents. It's just incredible. You can't even get a taco for a dollar anymore.
Sam: Yeah. I mean, even dollar stores are starting to raise the prices up to like a $1.25 every once in a while.
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Sam: The crazy thing is too, is that it's been // 99 cents since 1992, like 30 years have gone by and the price have stayed the same the entire time. in everything involved in making it has gone up in price, especially in the last two years. aluminum's gone crazy. the price of corn syrup has kind of ratcheted up over the last 20 years. when it started, it was a little more expensive than like a 20 ounce Coke, but now at 20 ounce Coke is like over $2, a 16 ounce Snapple's $1.79. And, those like Gold Peak are Purely things you see at the corner store, those are 18.5 ounces, and those are both like $2 or a little more. Um, so it's now it's a crazy deal and so I wanted to figure out how they kept it that way.
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Gustavo: So who owns this company and how and why did they decide a 99 cents for their can?
Sam: So, yeah, I mean, it was started by this guy named Don Voltaggio, who's a real, like, Brooklyn guy, he's from Flatbush. And, uh, he was working as a beer distributor, so he drove a truck around, you know, selling beer to stores, and he saw one day in the middle of the winter, he said a Manhattan, on like Broadway and Houston downtown, that someone was unloading cases of Snapple. And he was like, if people are going to drink ice tea in the winter, I got to get in this business.
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Sam: A Snapple truck pulls up, it's February and he's getting the 50 case order for Snapple ice tea in the winter time. And being a Northeasterner, we used to put our ice tea away after labor day. Um, and I said, wow, tea sells in a winter time, I got to get tin on the tea business. So I made the decision right on Broadway and house, the street in Manhattan.
Sam: So he was like, thinking of it, how can I stand out in this market? How can I do it? I know I'll put it in big Schlitz malt liquor cans. So they were like 23 ounce, huge cans.
Vultaggio: I chose the big can because it was tall. It stood tall. It stood out in the cooler. And then we put turquoise and pinks and yellows, those kind of color combinations. Never. They never existed in those coolers back in those days. And it had to look different than the rest of everybody. And then I said, if you're shopping, you're, you're shopping with your eyes and you're making a decision right there at your store.
Sam: He got his wife to design packaging because she had turned their house in the, you know, kind of New York suburbs, the Rockaways by the beach, into this kind of Southwestern style, Adobe, rowhouse situation. And, so he was like, uh, you know, the Arizona aesthetic is great. People love it--remember this is 1992. and, uh, he just rolled with it.
Vultaggio: At the time, I said, I don't know , what's an Adobe, I had never been west of the Mississippi. I didn't fly in an airplane till I was in my thirties. But she turned his house into something that was unique on the block with colors and style. And that's what Arizona came from. But the name Arizona came to me because Arizona, when I was a kid was, was dry. It was healthy. You had asthma, you moved to Arizona. And I thought that's a cool name, because if you get that kind of glow, it's a good place. And it's healthy and it's recognizable, the name. I used to say, Arizona was such a great name. They named to state after it. Ha. Yeah.
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Gustavo: And that price though, 99 cents.
Sam: So he picked it cause that was the same price as Snapple at the time. So Snapple was 99 cents, he was 99 cents, but the can was 50% larger, 16 ounces versus 24. He said that it just, it worked for them. They started printing the 99 cents on the can itself in 1996 so that, you know, retailers couldn't fuss with the price.
Vultaggio: Our cans were so different and pretty, um, was the reason people bought it. But it was also an opportunity for some retail to say, I can charge more for that no matter what they paid for it. So what we wanted to have is kind of like a cop, I call it, on a can. So that people understood that the price we were giving them, they should reflect to their consumer, you know, right. So that kind of cemented it with, uh, with a retail. Andn some guy say, I don't want to sell it for 99 cents.
Sam: They were doing enough volume. I, you know, one of their other employees described it as like, they moved from a slow dime business, into a fast nickel business where, you know, it's just trying to move as much as possible.
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Sam: And bring in as much revenue, even if you're only making a little bit on each can.
Vultaggio: You know, my model is sell more and drive the cost down that way versus raise price.
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Gustavo: It might've been a great deal in 1996. Might've made economic sense, but for 30 years to keep it at that point. Again, I just… shocked. Why keep it all these decades later, still at 99 cents?
Sam: Well, so yeah, Don Voltaggio he's in his seventies now. He talks with a very thick Brooklyn accent. I talked to him and he said that he would rather tighten his belt then pass the cost on to consumers.
Vultaggio: I'm still committed to that 99 cent price point. You know, when, when things go against you, you tighten your belt, right. Uh, some other manufacturers should do the same because, like I said, consumers don't need another price increase from a guy like me.
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Sam: He said, if you break the back of the customer, nobody wins.
Vultaggio: Understand that not only do your company has to deal with costs and increases what your customers and your consumers have to deal with cost increases. And if you break that back, nobody wins, right? What our customers recognize that what we're trying to do is keep them in, uh, in the ability to buy a beverage for a fair price every single day. And hopefully it can offset some of the other costs that are currently incurring, and help them get through life. Right?
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Sam: But it's also a calculation for his business. people are used to this price point, they like it. It's almost iconic at this point, you can buy like hats that say "Great buy: 99 cents" on them. And so he knows that it'll dilute his brand, it and might cut sales. And so he just doesn't want to risk it. And he believes that, you know, gas, aluminum will go down in price. So like right now he's making less money per can . But he kind of is, just taking a bet that it'll end up working out in his advantage to keep those customers and keep that price.
Gustavo: So he's a kind, ruthless capitalist.
Sam: Yeah. He's worth $4.2 billion now. Him and his two very large sons, they're all, you know, over six foot five. So this company has made them billions of dollars literally. So I think he figures too, he can not make quite as much money for a little while, and it's not a big deal. And he has enough shareholders, it's a private company. So it's just up to him.
Gustavo: Damn
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Gustavo: After the break, how AriZona Iced Tea pulls off its 99 cent price point, even though everything else is getting way more expensive.
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BREAK 1
Gustavo: Welcome back. So Sam, I'm curious about the economics of keeping a product at such a specific, advertised price point the way AriZona Iced Tea does with 99 cents. What's the logic behind that?
Sam: Well, so you know, this isn't the first company that's done this, Coca Cola managed to keep their 6.5 bottle, those little bottles of Coke, at 5 cents, just a nickel, for over 70 years from like kind of when bottling started in the late 1800's to the mid, late 1950's.
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Sam: And that wasn't really on purpose. The guy who ran Coca-Cola signed a bad deal with, uh, people who wanted to start a bottling company, cause back in the day, no one thought bottles would be a big thing. And so he was like, we're selling it at soda fountains who cares about bottles. He accidentally signed a contract that locked him into an 1880s price, even though time marched on and inflation went up. So Coca-Cola had to kind of like innovate to keep prices down, pump out mass volume. And then they were reluctant because their vending machines only accepted nickles, it was like kind of a mess. But it worked for them because they became this huge brand, everyone knew them. Even if they couldn't charge more money, they just became ubiquitous because they had to, or else they were going to die as a business. And so, in a certain way, Arizona is carrying that torch. I mean Coke drop that in the fifties, and now they've been going up. Uh, but Arizona is just like sticking to that same business model, working on volume, customer love advertising. I mean the free advertising of the cans themselves, to keep the product afloat.
Gustavo: It's almost like an urban legend that's real. Like, oh, this company has kept it at this insane price point forever and it's still continuing to do so. So even more people just like it.
Sam: Right, right.
Gustavo: Wow. Something else, again that 99 cents, it's almost a totem, if you will. The significance, it's not a buck, it's not a dollar or two: 99 cents. So I see that a lot, like $5.99, $6.99. What's the, what's the thinking behind 99?
Sam: Well, yeah, so this is something that, you know, there's, uh, an army of business professors out there who study stuff like prices. And, uh, there's a couple studies that look at how the psychology of nine works. And there's a couple different explanations. people don't really round up, so they kind of think, oh, it's like 90 cents. That's less than a dollar, one is that people, it's just become a kind of habit, like if you see that something ends in a seven or a four or a six, you're like, something's weird here. Like, what's going on? Am I getting scammed? But 99 cents, we're just used to it. So it goes in, and even though, you know, it doesn't really make sense, like you still get charged tax on it. So it ends up being like $1.06 or something like that when you ring it up. but something about that nine just sticks in people's heads. And they've studied it during crazy periods of inflation like in Israel and '80s, inflation was like 400 plus percent for a little stretch. but things that ended with nine were the slowest prices to go up because the companies were reluctant to actually change that nine price point. And when it does, instead of going up from 99 cents, just a dollar, a dollar, two, like you were saying, it jumps to the next nine. So it goes, you know, 99 cents to $1.09 to $1.29. And that's what we've seen happen with the price of a 20 ounce Coke over the last 20 years. It goes up in these 10 cent increments because people just love that nine.
Gustavo: Does this phenomenon have a name?
Sam: Price rigidity is the general name of, prices that kind of stay, oddly sticky in times of inflation because, you know, the classical economic explanation would just be like, "Hey, you know, inflation goes up, prices will automatically go up" in this kind of magical SIM city, world of prices. But, uh, but in the real world, you know, people like things to say the same and companies don't want to redo all their packaging and stuff like that. So there's a lot of reasons to keep it rigid. That's the term.
Gustavo: There should be a cooler name for this, like number nine law. Well, we'll figure something out later. So AriZona Iced Tea has been great at mastering these economic laws of like making demand, having an iconic price point, and that price point being nine. But now we're in an age of huge inflation. Huge. It's something we haven't seen in decades. So how is this affecting their philosophy, and frankly, their bottom line?
Sam: Yeah. I mean every other company, I I mean, for the most part is raising their prices kind of because there's this general sense of inflation, but also because the raw inputs that go into products are going up.
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Sam: Specifically the big thing for Arizona, they make their own cans where they order them from distributors. but the cost of aluminum has actually doubled in the last 18 months. It's gone from like $1,750, like $1,750 per metric ton to double that today. Plus there's like…the gas that goes into it, the moving the aluminum around, and high-fructose corn syrup has gone up a little bit. So like if they're selling a billion cans a year, just these changes mean that they're losing like $75 million that they would've made otherwise, by keeping the price the same. So that's why most people would raise it a little, 'cause they're like, "Hey, I don't want to lose $75 million when I could pass the price along to consumers. But, they've just decided to stick to it. And they've instituted a lot of new measures over the years to keep costs down so that they can weather this wild commodity market.
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Gustavo: Like what?
Sam: There's all kinds of stuff. They installed a rail spur at their main factory in New Jersey, 'cause it's cheaper to ship things on rail than on trucks. Uh, they use lightweight trailers so that they can fit more product in them. The can, the amount of aluminum in cans across the industry, has gone down about 40% in the last couple of years because of, uh, changes in can technology. and they just don't have a marketing budget. I mean, the simplest thing is that they don't spend any money on Superbowl ads, Christmas marketing campaigns with polar bears. You know, there's just nothing like that. It's just 99 cents on a can. Bright cans that sit in the shelf and jump out at you. And that's kind of it.
Gustavo: Are the people who like AriZona Iced Tea, more of a fan of what's inside of them or that price point?
Sam: You know, it's hard to deny a very sugary, caffeinated beverage. Uh, so I think, you know, as a, as a drinker, I'm definitely a fan of it. but there is something it's turned into a lifestyle brand in a funny way, over the last 30 years. A huge percentage of the country has grown up without it not existing, you know, their entire life, there's been AriZona Iced Tea on the shelves. And so a lot of people associate it with, you know, I'm in my thirties, I associate it with childhood nostalgia. It's got this kind of nineties vibe to it.
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Sam: There's a bunch of, kind of like gen Z influencers who are like skaters, who are really into the Arizona ice tea thing. Cause it's just like kind of comically large as an object to, I mean, there's a kind of just like wackiness to the thing cause it's like a giant can. And so yeah, I think it's a bit of both. it's managed to turn this very kind of commodity. Into a weird lifestyle thing that I don't think a lot of other drinks have outside of energy drinks, which are a kind of a different lifestyle brand.
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Gustavo: Coming up after the break. Well, more tea about Arizona ice tea.
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Gustavo: And we're back with LA times business reporter Sam Dean. Why don't you see more examples of what Arizona ice tea does with that price rigidity thing you were talking about?
Sam: There's something about them being a private company. I mean, Don and his sons really attributed to the fact that they can make that decision for most publicly held companies, Coca-Cola Pepsi co. AND Keurig Dr. Pepper is the holding company that owns Snapple and they own most of the non-alcoholic beverage market in the country. And they're all public. They depend on stock prices. They have shareholders, they have investors. Whereas, because there was one has managed to bootstrap their way from the beginning, there might've been some outside investment at some point. But you know, they really control the company. Uh, so they can make that kind of choice. Whereas a lot of other people have to, I mean, if you go through old Coca-Cola, uh, quarterly earnings calls, you know, everyone's on there being like, why don't we raise another 10 cents when we raise it another 10 cents after that, what's your prognosis for, you know, by 2015, can we hit $1.50? You know, like there's just like a lot of pressure to keep the money coming in in a way where these guys can decide like, Hey, we're going to have a slightly Lenier, whatever.
Gustavo: What do you think would happen if the Voltaggio family would ever change that 99 cents price?
Sam: Don seems pretty committed to not changing it for his natural life?
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Sam: I think probably they'd lose a lot of customers.
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Sam: I went around town and you do see a lot of places that. Kind of sneakily put a little paper sign on it that says, oh, actually it was 1 25 or something like that to try to juice a little more money out of it.
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They're raising the price for Arizona teas. Now, I thought that was weird because I on tiktok and even online, when you search up Arizona tea, inflation's like, how are they staying at 99 cents? Why do they commit make this thing to 99 cents? And I was like, well, that's weird. Cause like at my work they've raised two flavors to $1.09.
Sam: But you know, usually you can go around the corner and find somewhere else that's selling it for the 99 cents. But yeah, I mean, it's just a, you know, they'd become just another commodity in The market. I think there's, there's something they lose that icon status. and we've seen that almost happened a couple of times in Canada because the currency difference, they sell them for $1.29 Canadian dollars. and every once in a while, you know, it's the internet, there's no border. Someone will post a picture and be like, what the hell? What happened? Like, how is this more expensive than 99 cents? The world is ending what's happening to us? I mean, I think people tweeted, like, if this is the future, I don't want to live in it. You know? The, the company has to take to Twitter and be like, don't worry, guys. It's still 99 cents. Uh, just, don't go to Canada, you know, whatever.
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Arizona has this thing, where if they find out that a store is selling their ice teas for more than what is marked on the can, um, they will pull their products from the shelves.
Sam: Because it really is this, this emotional attachment to, this price point that, you know, it doesn't really make that much sense, like an extra dime. It doesn't make that much of a difference in the end, but, I think they just would lose a lot of that shine..
Gustavo: And then finally, Sam, what's your favorite flavor?
Sam: I love the classic, just the green tea. there was a limited edition shit. Arizona ice tea. that was pretty good. They had like a great Bain flavor in there. I kinda love grape flavor and stuff. But yeah, the green tea ginseng, honey, it's just a classic beautiful, green cherry blossom can, especially if you think of like hot summer day…
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Sam: Just this like brick of cold ice tea. It's great.
Gustavo: For 99 cents.
Sam: Yeah, exactly.
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Gustavo: Sam, thank you so much for this conversation.
Sam: Thanks for having me.
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Gustavo: And that's it for this episode of the times, daily news from the LA times tomorrow, Mexico’s president pushed for a recall election…of himself. Like we say in the rancho, se hace.
Angel Carreras was the jefe this episode and our show is produced by Shannon Lynne, Denise gala, Kasha Sallian Ashley Brown, angel Carreras and David , our engineers, Mario Diaz, our editors Kinsee Morlan.
Our executive producers are Husman, Agata and Shani Hilton. And our theme music is by Andrew like what you're listening to then make sure to follow the times on whatever platform you use. Don't make us the Puccio podcasts. Okay. You like the show, right? Why else would you be listening to it? You know, so do me a favor and the producers and the half-ass and all of that, till three of your friends about us, text them a link to our show right now, slack it, email it, whatever, but spread the love or five or thank you in advance.
And me, of course, I'm Gustavo Arellano. We'll be back tomorrow with all the news in this modern day. Gracias.