Dr Pepper Snapple (
) is a leading manufacturer and distributor of carbonated soft
) and non-carbonated beverages (
). In 2013, the company's shares gained just 11%, lagging
not only the S&P 500′s 29% rise, but also PepsiCo's 21%
and Coca-Cola's 13% advances. One of the main reasons for this slow
growth is the recent soda slump, which has affected the company's
North America CSD business. To add to its woes, Dr. Pepper Snapple
has undergone ten consecutive quarters of flat to negative growth
in the fast growing NCB division. The only bright spot for the
company is its Latin America business, in which volumes increased
6% through September.
We have a $50 price estimate for Dr Pepper
, which is around 3% above the current market price.
See Our Complete Analysis For Dr Pepper
Latin America Drives Growth
Amid CSD woes, sales of Dr. Pepper's Latin America division have
increased over 12% to $346 million. Accompanying a double-digit
rise of the flagship brand Dr. Pepper and an 8% increase in sales
of Clamato juice, the company's bottled water brands grew, aided
by heightened promotional activities and product innovation.
Sales of the flavored sparkling water brand Penafiel increased by
10% and those of Aguafiel mineral water rose by 8%.
The bottled water market in Mexico provides potential growth
opportunities due to widespread concerns over the safety of tap
water andthe inconvenience and expense of boiling large quantities
of water. The per capita consumption of bottled water for Mexicans
was 248 liters in 2011, compared to just 110 liters for the U.S.
This market is expected to become the world's largest bottled water
market, growing from $9 billion in 2011 to $13 billion in 2015.
Danone and Coca-Cola have managed to capture more than half of
the Mexican bottled water market with their brands Bonafont and
Ciel respectively. PepsiCo also has a share of over 13% in this
market. Therefore, Dr. Pepper will have to look to strengthen its
foothold in this market by accelerating investments in marketing
and innovation. The company also faces the threat of small local
companies, which account for ~15% of the total volumes. It
thus must look to further develop its distribution channels and
penetrate deeper into this region.
CSDs In North America Continue To Fall
Growing consumer health concerns over the consumption of
carbonated drinks continue to compress soda sales, especially in
the developed world. Consequentially, Dr. Pepper's CSD volumes
declined by 2% through September. Low/no calorie fizzy drinks have
also been targeted for the use of harmful artificial sweeteners
which cause health problems along with sugar cravings,
dehydration and even weight gain. These reasons are why the
newly launched low calorie TEN variants of Dr Pepper's Core 4
brands (7-Up, A&W, Sunkist and Canada Dry) remained flat during
the first nine months. In fact, the diet drink segment is the
most underperforming segment of the overall liquid refreshment
beverage (LRB) market. The continual decline in demand for both
regular and diet CSDs might impede growth in the North America CSD
division, which constitutes almost three-fourths of the company's
Going forward, Dr. Pepper will look to leverage its strong brand
reputation and faithful consumer following to spur growth in CSDs.
The company invested around $30 million in its TEN product launches
over the past year, and will look to increase marketing spend to
improve CSD sales.
Dr. Pepper Struggles In The NCB Market
While consumers move from sugary CSDs to healthy natural
alternatives such as ready-to-drink (RTD) teas, energy and sports
drinks and bottled water, Dr. Pepper seems to have fallen
behind. Although the company has a formidable share of ~17% in
the U.S. CSD market, it hasn't performed as well in the NCB market.
In the fast growing segments such as RTD teas, bottled water and
energy drinks, the company has a limited presence. The volumes
declined by 4% in this division through September. Sales of the
juice brand Hawaiian Punch declined by 10% due to low promotional
activities and ongoing criticism of high-sugar beverages.
As the market slowly shifts from fizzy to non-fizzy drinks, Dr.
Pepper Snapple will have to further penetrate the NCB market in
order to maintain its market share in the overall beverage
industry. In addition to stepping-up investments in the current
product line-up, the company will look to expand its brand
portfolio to attract sales. For example, Dr. Pepper has a
distribution agreement with Bai 5, a coffee-fruit based low calorie
drink, which grew by a whopping 400% to reach $20 million sales in
the last year.
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