Dr Pepper Snapple Group, Inc - COMPANY PROFILE
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COMPANY PROFILE Dr Pepper Snapple Group, Inc. REFERENCE CODE: C8D5F114-1FD8-4294-96A1-2F1578F87328 PUBLICATION DATE: 26 Sep 2012 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED.
Dr Pepper Snapple Group, Inc. TABLE OF CONTENTS TABLE OF CONTENTS Company Overview..............................................................................................3 Key Facts...............................................................................................................3 SWOT Analysis.....................................................................................................4 Dr Pepper Snapple Group, Inc. Page 2 © MarketLine
Dr Pepper Snapple Group, Inc.
Company Overview
COMPANY OVERVIEW
Dr Pepper Snapple Group, Inc. (DPS or 'the company') is a manufacturer and distributor of more
than 50 brands of carbonated soft drinks (CSDs), juices, teas, mixers and other premium beverages.
The company primarily operates in North America. It is headquartered in Plano, Texas and employed
about 19,000 people as of December 31, 2011.
The company recorded revenues of $5,903 million in the financial year ended December 2011
(FY2011), an increase of 4.7% over FY2010. The operating profit of DPS was $1,024 million in
FY2011, a decrease of 0.1% compared to FY2010. The net profit was $606 million in FY2011, an
increase of 14.8% over FY2010.
KEY FACTS
Head Office Dr Pepper Snapple Group, Inc.
5301 Legacy Drive
Plano
Texas 75024
USA
Phone 1 972 673 7000
Fax
Web Address http://www.drpeppersnapplegroup.com
Revenue / turnover 5,903.0
(USD Mn)
Financial Year End December
Employees 19,000
Dr Pepper Snapple Group, Inc. Page 3
© MarketLineDr Pepper Snapple Group, Inc. SWOT Analysis SWOT ANALYSIS DPS is a manufacturer and distributor of more than 50 brands of CSDs, juices, teas, mixers and other premium beverages. The company is one of the leading producers of flavored beverages in North America and the Caribbean. Strong market position not only provides a competitive advantage to the company but also enhances its bargaining power. However, changing customer attitude towards soft drinks, and therefore their preferences, could adversely impact the sales of the company's carbonated beverages which could, in turn, impact its overall revenues. Strengths Weaknesses Strong market position built on strong brand Excessive dependence on few market portfolio players Strong focus on research and development Wide geographic manufacturing and distribution coverage Rapid continuous improvement initiative Opportunities Threats Growing energy drinks and shots market Changing demand patterns in the CSD Strategic alliances to boost the company's market growth Proposed tax on the consumption of Growing low-calorie and diet flavored soft sugared soft drinks drinks market Intense competition Strengths Strong market position built on strong brand portfolio DPS is one of the leading producers of flavored beverages in North America and the Caribbean. In 2012, the company was ranked among 500 America's largest corporations by a business magazine. DPS's broad range of product offerings in the CSD and NCB categories makes it one of the leading companies in the non alcoholic beverages market. The company is the number one flavored CSD company in the US. DPS also holds number three position in the North American liquid refreshment beverage (LRB) business. In FY2011, about 84% of the company's sales volume was generated by brands that hold either the first or second position in their respective category. For instance, in CSD category, Dr Pepper brand holds number one position in its flavor category and number two position in overall flavored CSD category in the US. Canada Dry brand is the number one ginger ale category in the US and Canada. 7UP brand holds number two position in the lemon-lime CSD category in the US. A&W brand holds number one position in the root beer category in the US. Sunkist brand Dr Pepper Snapple Group, Inc. Page 4 © MarketLine
Dr Pepper Snapple Group, Inc. SWOT Analysis holds number one position in orange CSD category in the US. Squirt brand holds number one position in grapefruit CSD category in the US. It is also one of the leading grapefruit CSDs in Mexico. Penafiel is number one carbonated mineral water brand in Mexico. Schweppes brand holds second position in ginger ale category in the US and Canada. In the NCB category, Snapple brand is one of the leading ready-to-drink teas in the US. Hawaiian Punch is the largest fruit punch brand in the US in terms of sales volume. Mott’s is the leading apple juice and apple sauce brand in the US. Aguafiel is the leading mineral water brand in Mexico. Clamato is one of the leading spicy tomato juice brands in the US, Canada and Mexico. In addition, many of the DPS's brands enjoy high levels of consumer awareness, preference and loyalty. The company's broad product portfolio provides its customers (bottlers, distributors and retailers) with a wide variety of products to choose from. Strong brand names allowed the company to launch innovative brand extensions such as Dr Pepper Cherry, 7UP Cherry Antioxidant, Canada Dry Green Tea Ginger Ale, Mott's for Tots and Snapple Value Teas. The brands are well supported with various sales and marketing initiatives. In FY2011, the company's advertising and marketing expenses reached $460 million. Market leadership not only provides a competitive advantage to the company but also enhances its bargaining power. Strong brand portfolio enables the company to achieve economies of scale in distribution and retain a strong bargaining position with retailers. Furthermore, leading market position provides DPS with significant competitive advantage. Strong focus on research and development The company's research and development team is engaged in activities related to product development, microbiology, analytical chemistry, process engineering, sensory science, nutrition, knowledge management and regulatory compliance. DPS’ research and development team includes scientists and engineers in the US and Mexico. The company spent $15 million on research and development during FY2011. Substantial investment in research and development activities allows DPS to develop products with acceptance across many customer segments that can be consistently produced across a diverse manufacturing network and sold at competitive prices. The company's focus on research and development adds to market competitiveness. Products developed around customer requirements and taste preferences help it to stay ahead of the curve in the competition and enjoy a leading market position. It also widens the platform for revenue generation. Wide geographic manufacturing and distribution coverage DPS operates an extensive manufacturing and distribution network. At the end of FY2011, the company operated 18 manufacturing facilities and 116 principal distribution centers and warehouse facilities in the US. It also operated three manufacturing facilities and seven principal distribution centers and warehouse facilities in Mexico. These facilities which are strategically located enable the company to align its operations in line with the customer demand, reduce transportation cost, as well as help it to have complete control over delivery timings. It also facilitates DPS to coordinate new product launches in a better way. Further, in order to ensure product availability to meet customer demand, the company’s warehouses are located near bottling plants and are geographically dispersed. Dr Pepper Snapple Group, Inc. Page 5 © MarketLine
Dr Pepper Snapple Group, Inc. SWOT Analysis DPS utilizes its own fleet of approximately 6,000 delivery trucks to manage the transportation of its products. It also uses third party logistics providers on a selected basis to transport its products. Thus, extensive manufacturing and distribution facilities enable the company to reach a larger customer base which, in turn, enhances its market penetration capabilities. Rapid continuous improvement initiative The company launched Rapid Continuous Improvement (RCI) initiative in 2010. RCI uses tools such as Lean, Six Sigma, and Kaizen to deliver customer value and improve productivity. This initiative enables the company to focus completely on customers. It also helps eliminate waste, improve food safety levels, improve quality and delivery time. In FY2011, more than 1,200 employees participated in 92 RCI projects across the company. This enabled DPS to improve sales productivity, increase per capita consumption of its brands, and improve marketing and innovation while reducing costs and inventory, as well as lowering certain capital requirements. It also helped the company to release resources (people, time and money) that can be redirected towards building its brands, as well as growing its business and contributing strong total shareholder returns. During 2011, as part of Kaizen events, DPS also implemented 250 safety improvements, closed seven outside warehouses, and reduced eight days of inventory while improving service levels. Further, the company’s Latin America beverages team completed 21 improvement events which focused on sales route and distribution optimization and inventory reduction. The Mexico City-Iztapalapa sales team nearly doubled the number of customers visited each day and improved sales efficiency from 49% to 97%. In addition, the Latin America beverages team reduced finished product and raw materials inventory by 20%, enabling the closure of two outside warehouses. Initiatives such as these allow DPS to not only reduce its operating cost but also to serve its customers efficiently. It also helps the company to improve its productivity and product quality as well as reduce the delivery time. Weaknesses Excessive dependence on few market players The company excessively relies on few market players for majority of its revenues. Almost 70% of Dr Pepper volumes are distributed through the Coca-Cola affiliated and PepsiCo affiliated bottler systems. In FY2011, PepsiCo and Coca-Cola accounted for 29% and 20%, respectively, of the beverage concentrates division's net sales. In addition, Wal-Mart accounted for 18% of the packaged beverages division’s net sales. Since the company is dependent on few market players for a substantial portion of its revenues, a decline in the purchase order from these players could affect the company’s sales volume. Also, unilateral pricing decisions or stocking rules adopted by these players could have a major impact on its profitability. Under these circumstances, a higher reliance on few market players limits the company's bargaining power as well as the pricing flexibility. Opportunities Dr Pepper Snapple Group, Inc. Page 6 © MarketLine
Dr Pepper Snapple Group, Inc. SWOT Analysis Growing energy drinks and shots market The energy drinks and shots market is expected to grow in the coming years. As per industry sources, the US energy drinks market grew by 16% in the first six months of 2011. The energy drinks and shots market generated about $7 billion in 2011 and the sales of these products are expected to grow by more than 10% annually until 2016 according to industry experts. Further, the energy shots category alone is expected to grow by more than 90% in sales between 2011 and 2016. Therefore, by leveraging its expertise, distribution network and a broad product portfolio, DPS can cater to the increasing demand for energy drinks and shots market in the US. By being a part of a rapidly growing market, the company can boost its revenue and enhance profit margins. Strategic alliances to boost the company's growth DPS has entered into several strategic partnerships in the recent past. For instance, in 2010, the company completed licensing of certain brands to Coca-Cola following Coca-Cola's proposed acquisition of North American Bottling Business of Coca-Cola Enterprises and executed separate agreements under which Coca-Cola began offering Dr Pepper and Diet Dr Pepper in local fountain accounts and the Freestyle fountain program. As per the licensing agreement, Coca-Cola distributes Dr Pepper in the US and Canada Dry in the Northeast US where these brands were previously distributed by Coca-Cola Enterprises. Coca-Cola also distributes Canada Dry and C Plus in Canada. Under a separate agreement, Coca-Cola has agreed to include Dr Pepper and Diet Dr Pepper brands in its Freestyle fountain program. These agreements have an initial period of 20 years. These agreements will optimize the company’s market reach by increasing distribution of several key brands. It will also increase its fountain presence, resulting in more consumers sampling its brands. Further, in March 2011, the company signed a multi-year agreement with Popeyes to bring Dr Pepper and Hawaiian Punch to more than 1,300 US locations. This agreement will enable DPS to serve the restaurant industry with its flavor brands, In April 2012, the company reached a seven-year marketing agreement with Chicago Bears (one of the founding franchises of the National Football League) to be an exclusive provider of soft drinks and other beverages at Chicago’s Soldier Field (sports venue). In addition to soft drinks, the agreement also covers teas, bottled water, energy drinks, juices and juice drinks. This agreement will enable the company to increase its brand awareness. Therefore, by forming such strategic alliances DPS can improve its presence in the high margin channels and also enhance its market presence. Wider market presence will help the company to boost its revenue and enhance its market position. Growing low-calorie and diet flavored soft drinks market The market for low-calorie and diet flavored soft drinks has been increasing in recent times primarily due to rising demand for healthy products from consumers. According to industry estimates, the low-calorie and diet flavored soft drinks registered highest increase in the CSD category with dollar sales growth of 3.4% in the 12 months to April 2012. This market is further expected to grow due to rising health related diseases like obesity, as well as due to new product innovations related to health products. DPS launched Dr Pepper TEN, a low-calorie version of its flagship brand, in 2011. The company also plans to launch low-calorie versions for other brands such as 7UP, Canada Dry, Dr Pepper Snapple Group, Inc. Page 7 © MarketLine
Dr Pepper Snapple Group, Inc. SWOT Analysis Sunkist soda, A&W and RC Cola. Therefore, the company is well positioned to tap the growing low-calorie and diet flavored soft drinks market through its new product launches. Threats Changing demand patterns in the CSD market According to industry estimates, the consumption of CSD in the US declined by 1% in 2011 compared with 0.5% in 2010. Increasing concern among consumers of the potential health problems associated with obesity and inactive lifestyles represents a significant challenge to the beverages industry. In addition, some researchers and health advocates are encouraging consumers to reduce consumption of sugar-sweetened beverages, including those sweetened with high fructose corn syrup (HFCS), a form of sugar, or other nutritive sweeteners. Furthermore, there has been an increase in the number of regulations regarding CSDs in the US in response to the heightened desire for healthy food consumption. Many state public school systems banned the sale of soft drinks on their campuses. Further, several US states are considering putting a tax on sweetened soft drinks to defray the cost of treating obesity-related diseases like heart disease, diabetes and cancer. These factors have driven a shift in consumption away from CSDs to healthier alternatives, such as tea, juices, and water. An increased consumer preference for healthier drinks results in slowing growth rates of sales for the company's soft drinks. Changing customer attitude towards soft drinks, and therefore their preferences, could adversely impact the sales of the company's carbonated beverages which could, in turn, impact its overall revenues. Proposed tax on the consumption of sugared soft drinks The federal and various state governments in the US have long been discussing the option of implementing tax on the consumption of sugared beverages as these beverages account for nearly 50% of the added sugar in Americans’ diets, according to industry sources. These discussions have been taking place in order to curb obesity in children and promote healthy food habits. According to health experts, non-diet soft drinks are a key source of excess calories in the US diet and are fuelling the obesity epidemic. As of July 2011, 35 US states had taxes on sodas sold in food stores, and 40 taxed sodas in vending machines. Implementation of these types of taxes can lower the consumption of sweetened beverages, reduce health problems and save medical costs. With customers moving away from the consumption of sweetened beverages, DPS is likely to register a decrease in the demand for its products which could, in turn, negatively impact its profit margins. Intense competition The LRB industry is highly competitive. The key factors influencing the competition in this industry include brand recognition, taste, quality, price, availability, selection and convenience.The competitors of DPS include bottlers and distributors of nationally advertised and marketed products, regionally advertised and marketed products, and bottlers and distributors of private label beverages in Dr Pepper Snapple Group, Inc. Page 8 © MarketLine
Dr Pepper Snapple Group, Inc. SWOT Analysis supermarket stores. The largest competitors of the company in the LRB industry include Coca-Cola and PepsiCo, which together represent about 62% of the US LRB market by volume. DPS also competes with other large companies such as Nestle and Kraft Foods. These competitors might have the ability to use their resources and scale to respond to changes in consumer preferences by introducing new products, reducing prices or increasing promotional activities. In Canada, Mexico and the Caribbean, DPS competes with many of these same international companies as well as several regional competitors. In such a competitive landscape, the company may be forced to increase its spending on advertising and promotions or reduce prices that may lead to reduced profits that could adversely affect growth. Dr Pepper Snapple Group, Inc. Page 9 © MarketLine
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