NRPLUS MEMBER ARTICLE I f you’ve ever made a pitstop on a road trip or stopped at a convenience store on a hot summer day, you know you can always count on being able to buy a big can of AriZona iced tea for 99 cents. The company’s Arnold Palmer, lemon, ginseng and honey, and sweet iced teas are ubiquitous despite hardly ever being advertised, sharing shelf space with products from behemoths Coca-Cola, PepsiCo, and Keurig Dr Pepper.

There weren’t a lot of things you could buy for 99 cents before inflation began to surge two years ago, and the increase in the price level has only made it more difficult for companies to keep prices low. Yet AriZona announced it remains committed to its trademark 99-cent price, which is stamped directly on the 23-ounce cans in block print. So how is the company staying afloat?

In April 2022, the Los Angeles Times did a deep-dive into how AriZona works. The company sells about 1 billion 99-cent cans per year, but that is only 25 percent of its total revenue. AriZona sells gallon jugs of its iced teas, along with fruit drinks, energy drinks, and other products, all priced similarly with other brands. The 99-cent cans are its most famous product, but they are a type of loss leader.

For a company that doesn’t advertise, customer loyalty is important. Customers have known for 30 years that they can walk into just about any convenience store in the country and get a can of AriZona iced tea for 99 cents, and it would hurt the company to break that implicit promise.

The company is exceptional at differentiating its products from others and carving out a niche in a very competitive market. AriZona founder Don Vultaggio told the Times, “When we first started, I didn’t have the money for [advertising] — so each can had to be like a billboard. That’s why I chose the big can. It stood tall.” A vital part of that differentiation is the 99-cent price, which is what 16 ounces of Snapple cost when AriZona started in 1992. AriZona undercut them from the very start by offering 23 ounces at the same price in 1992. Sixteen ounces of Snapple now costs around $2.

Branding and customer loyalty are vital aspects of business, especially for beverages, but math is math. Locking in the price at 99 cents guarantees that the company’s signature 23-ounce cans will become less and less profitable. Eventually it will be harder to make up the difference with its other products, which are less beloved by customers and have lower shelf visibility in stores.

So it makes sense that AriZona has started a new product line: premium cold-brew iced tea. It’s sold in 16-ounce plastic bottles, and you can find it in the same refrigerator as the 99-cent cans and AriZona’s competitors. The price is not stamped on the bottle, and it retails at roughly the same price as other iced-tea products, around $2–$2.50.

AriZona continues to excel in product differentiation. “COLD BREW” is the largest thing on the label. You’ve probably heard of cold-brew coffee, but maybe not cold-brew iced tea, and other brands don’t display that so prominently. The bottle, while being the same size as other brands, is shaped differently. And of course, it’s labeled as “premium” and “all natural” “real brewed tea.”

I tried it for the first time a few days ago. It is a better product than the 99-cent stuff. It uses sugar instead of high-fructose corn syrup and tastes more natural. I’m not sure what the cold-brewing is supposed to do to the taste; it tasted like iced tea to me. But it’s a worthy competitor with the other higher-end iced teas from the bigger companies.

AriZona has managed to respond to inflation while keeping its famous 99-cent product on the shelves. It could have raised the price on its existing product, as other companies have done. Instead, it kept that signature item while introducing a new item that, if successful, will be profitable in the same way other companies make money off of iced tea.

Why didn’t AriZona just play along with the rest of the industry from the start? Because if AriZona didn’t get its start by undercutting the existing brands, it would never have been in the position to introduce its cold-brew product in the first place. Now it can use the branding and customer loyalty it has built up over decades to get customers to try a new and more profitable product. It gets to be the plucky smaller firm undercutting the big boys while also competing directly with them — all in the same refrigerator.

Higher-than-normal inflation was spurred by poor monetary policy and blowout government spending. AriZona’s creative response is one example of how companies have adapted to a rising price level. Don’t let anyone tell you entrepreneurship is dead in this country.