Better Supplier Negotiations: How Is AriZona Iced Tea Still One Dollar?

Procurement practitioners today have a lot on their plates. They must keep costs low without sacrificing quality. Sometimes, this can seem like mission impossible.

However, some brands can achieve this cost-savings mission. A stellar negotiation strategy allows you to achieve astounding results. One such brand is AriZona Iced Tea, which has managed to keep its (super delicious) product at an almost unheard-of low of $0.99 for years.

Is it because of their procurement processes, other reasons, or a mixture? We take a deep dive into the AriZona Iced Tea brand to answer these questions and to see if there are some tactics procurement can borrow.

The Impacts of Inflation on AriZona

Inflation. It’s a dirty word for consumers and especially vile for procurement practitioners.

Inflation is the general increase in the prices of goods and services in the economy, and it’s a thorn in many of our sides. To give you an idea of how rough things are getting, statistics show that the annual inflation rate in the U.S. accelerated to 9.1% in June 2022 (the highest since November of 1981). Products’ price tags—for everything from gas, shelter, energy, and food—have risen to extraordinary heights.

Yet, amid the skyrocketing costs and sticker shock of 2022, AriZona Iced Tea brand has managed to defy the odds, not budging on its bargain price ($0.99) that has been a steal for over three decades now. According to an article published in the Los Angeles Times, “AriZona Iced Tea has managed to keep its big cans priced at 99 cents for 30 years, even as inflation has ticked up.”

So, how have they done this? AriZona is not immune to the impact of inflation, with the uptick of raw materials, ingredients, and transportation costs of producing their product. The Los Angeles Times points out, “The price of aluminum has doubled in the last 18 months. The price of high fructose corn syrup has tripled since 2000. Gas prices are pumping up delivery costs.”

So, how can the 99-cent Big AZ Can (as the company calls it) persist? Is it solely attributed to better supplier negotiation?

Is Arizona Better at Supplier Negotiation?

AriZona can keep costs down in creative and smart ways, such as planning logistics at night and using cans that use less aluminum. So their supplier negotiations game deserves a nod. But that isn’t the only reason for the brand’s success—no brand is immune to the inflation factors affecting the entire economy. There is a trickle-down effect that affects us all, stellar supplier negotiators or not.

This is where the company’s extra measures of adopting lean practices come into play.

AriZona: Leaning into Lean Practices

According Don Vultaggio, the founder and chairman of the company, he did not want to bow to the pressure to raise his product prices to match the ever-ballooning inflation rate. Vultaggio explained, “I don’t want to do what the bread guys and the gas guys and everybody else are doing. Consumers don’t need another price increase from a guy like me.”

Vultaggio said he’s “committed to that 99-cent price” and “when things go against you, you tighten your belt.” So, what does “tightening the belt” mean? It doesn’t sound fun, but it’s necessary if you want to emulate AriZona’s success.

Companies must tighten things up and lean out their processes and operations to stay in fighting shape. In AriZona’s case, they’ve kept their marketing budget to a minimum (Vultaggio mentioned they use its aesthetically pleasing cans as mini-billboards), and the entire operation is lean. They operate with a small 350-people staff at headquarters and 1,500 employees further afield.

And yes, in keeping the same price tag since the 90s, the company is making less money. While the big cans are still profitable, at least for the moment, they’re much less so than they were just a few years ago.

But, clearly, Vultaggio considers this a trade-off he is willing to make, one that’s worth it. “Your company has to deal with cost increases, but your customers have to deal with cost increases too,” Vultaggio said. “And if you break their back, nobody wins.”

Want to be a winner? Join the Foundry today, where you will learn how to play the game – and win.