-By Kenneth Hein

PepsiCo and Unilever, announced yesterday (Aug. 19), a licensing agreement to manufacture, market and distribute Starbucks' premium ready-to-drink Tazo Tea beginning in October.

Tazo is just the latest Starbucks brand to enter the Pepsi portfolio. The beverage giant also distributes bottled Starbucks Frappuccino, Doubleshot espresso and other products under the its North American Coffee Partnership.

The move comes as cold tea sales have cooled. The tea category, after undergoing a resurgence in 2007, slowed to nearly flat growth (up only 2.1%) for the first half of the year. Pepsi owns about 40% of the category thanks to Lipton, per Beverage Digest, Bedford Hills, N.Y. AriZona is second with its sales volume making up about a third of the category for the first half of the year. Snapple is a distant third with a 12.6 share.

"Tea has slowed a bit. Most of it is because of the economy," said John Sicher, editor of Beverage Digest. "Tea is one category that will resume good growth when consumer spending is healthy again."

Coca-Cola, meanwhile, has struggled in the tea category. Its Nestea product, despite relaunching with new packaging and ads earlier this year, saw its volume fall 7.7%, giving it 7.5% of the category.

Coke acquired 40% of Honest Tea, which is an organic beverage, for a reported $43 million in February. In April, the brand launched a mid-calorie tea that will be mass marketed.

Tazo, which was acquired by Starbucks in 1999, will be integrated into the Pepsi/Lipton Tea Partnership which oversees the top-selling Lipton brand. Kraft will continue to handle Tazo's filterbag and tea latte concentrate business. It had previously distributed the teas as well, however, "It never received adequate focus at Kraft, which is essentially a warehouse-driven grocery company," said Gerry Khermouch, editor of Beverage Business Insights, West Nyack, N.Y. "It gives Pepsi a counter to Coke's Honest Tea, which is still performing well."

Sicher is tempering expectations for the product. "It's a good premium addition to the Pepsi portfolio. [But], it is a small brand that won't account for much volume any time soon."