PLANO, TEXAS — Dr Pepper Snapple Group only has been a stand-alone, publicly-traded company on the New York Stock Exchange for a short time — a little less than seven years to be exact — but the company’s brands have a history dating back three centuries.
From the birth of the first soft drink in 1783 when Jean Jacob Schweppe created the first carbonated mineral water to Charles Alderton’s invention of Dr Pepper in 1885 to the creation of an apple soda called Snapple in 1973, the brands that now make up the Dr Pepper Snapple portfolio have a rich history.
Today, Dr Pepper Snapple Group markets more than 50 brands of carbonated soft drinks, juices, teas, mixers, waters and other premium beverages. In addition to Dr Pepper and Snapple, the company’s portfolio includes 7UP, A&W, Canada Dry, Clamato, Crush, Hawaiian Punch, Mott’s, Mr & Mrs T mixers, Peñafiel, Rose’s, Schweppes, Squirt and Sunkist.
The ability to continue to deliver innovation that gives consumers options to help them live a balanced lifestyle led to strong fiscal 2014 performance at Dr Pepper Snapple Group, Inc. Net income in the year ended Dec. 31, 2014, totaled $703 million, equal to $3.59 per share on the common stock, up 13% from $624 million, or $3.08 per share, in fiscal 2013. Net revenues for the full year also improved, rising 2% to $6,121 million from $5,997 million.
“I am proud of our strong performance in 2014,” Larry Young, president and chief executive officer, said during a Feb. 12 conference call with analysts. “We continued to operate in a competitive environment with continuing headwinds against C.S.D.s (carbonated soft drinks), particularly diets. And yet our teams remained focused on our strategy and delivered solid results against our key priorities.”
Mr. Young said Dr Pepper was able to connect and engage with consumers through its football and 7UP electronic dance music programs, and also delivered innovation with the national launches of Canada Dry and Schweppes sparkling waters, and test-market introduction of naturally sweetened C.S.D.s.
“This year we’re expanding the test of naturally sweetened C.S.D.s to three key regional markets and launching Snapple Straight Up Tea, a new line of unsweetened and slightly sweetened teas in 18.5-oz PET bottles,” he said. “We are also expanding distribution on our glass bottle C.S.D.s and launching Hawaiian Punch in a pouch format, giving mom an on-the-go option for the fruit drink her kids love.”
He said the company benefited from the ability of the TEN platform to bring lapsed occasions back into C.S.D.s.
“Whenever I talk about bringing lapsed users back, not only bringing (those) that have left C.S.D.s, and let’s say from our research we are showing a lot of them went to fruit juices, to sports drinks,” he said. “Now with the TEN, they’re coming back to C.S.D.s. And so, we still remain very, very committed to the TEN platform. Our guys are doing some great execution out there.
“You know, it helps us also on diets, because it doesn’t mention diet on there, and so it doesn’t seem to be affected as much. But, you’ve heard me say before, it takes a long time to build a brand. We told everybody in the beginning, whenever we first came out with Dr Pepper TEN three years ago, that we were going to stay committed to it and continue to build it. All the results we’re looking at tell us we’re still on the right track.”
Peñafiel to make U.S. debut
In 2015, Dr Pepper plans to bring Peñafiel, the top selling mineral water brand in Mexico, to the United States, Mr. Young said.
“Like we’ve told you before with our Hispanic strategy, we have found, as we go out in the market, a lot of us think we have packages and brands they want,” he said. “But the Hispanic consumer is very savvy, and they want to see something from Mexico. Marty (Ellen, chief financial officer) and I were in the trade a while back where we had some of our products in our regular U.S. packaging, and the owner of the chain of Hispanic supermarkets told us they were fakes and that the consumer knew it.
“Where we’ve brought the Peñafiel from Mexico in, the success has been tremendous. We’re looking forward to bringing this in, especially into our Hispanic markets where we have our focus points. And it’s still early, but I think you’re going to see some great results from these.”
Cold partnership could be hot
Mr. Young also touched briefly on the recently signed partnership with Keurig Green Mountain. The Keurig Green Mountain Kold single-serve beverage system is scheduled to be introduced later this fall, and as part of a multi-year agreement, Keurig will be the exclusive producer of single-serve pod-based carbonated Dr Pepper Snapple brands using fountain syrup in the cold platform in the United States and Canada.
Mr. Young acknowledged that while Dr Pepper Snapple does not know how big the Keurig “cold” launch is going to be, “we know that it could be a very, very important channel, so we want to make sure we are there.”
“I think it could be a big piece into another one that we’re all watching close on ecommerce,” Mr. Young said. “But those two could tie very closely together, so we all want to understand that, and know where it’s going to go, but most importantly, make sure that our brands are there.”
Strides in packaging
Coca-Cola Co., Atlanta, and PepsiCo, Inc., Purchase, N.Y., have made package innovation a priority. Dr Pepper Snapple also sees packaging playing a key role, although maybe not to the extent of its competitors in the category.
“We constantly look at package innovation,” Mr. Young said. “We do a lot of it by geographic territories. And with Coke and Pepsi, where we have Dr Pepper with them, we participate in those packages. So we know how they perform, and where we should have them.
“You’ll see some of the smaller packages with our innovation coming out, not only package innovation, but some of our new brand innovation, and items that we have lined up for the year. So, we look at it very closely and we take advantage of any price we can, but we also want to make sure that we have the package lineup that the consumer wants out there.”
Challenges ahead in 2015
While there is plenty of reason to be optimistic about the future of Dr Pepper Snapple, Marty Ellen, chief financial officer, cautioned that tough headwinds in the C.S.D. category, particularly in diets, combined with the strengthening U.S. dollar’s impact on the company’s businesses in Mexico and Canada will affect 2015 full-year guidance.
He said the company expects 2015 net sales will be up approximately 1%, net of a foreign currency headwind of 1%.
“With 80% of our volume in C.S.D.s, total company sales volume is expected to be flat, with C.S.D.s down slightly, offset by growth in our non-carb portfolio and allied brands,” Mr. Ellen said. “On a total company basis, we expect combined price and mix to be up about 2%. Our Jan. 1 concentrate price increase will drive about 40 basis points of this increase, and the remainder will come as a result of growth in our higher-priced non-carb and allied brands.”
