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DPS defends Dr Pepper TEN as analyst warns of distribution declines

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By Ben Bouckley+

09-Sep-2013
Last updated on 09-Sep-2013 at 11:44 GMT

Picture Credit: Sergey Galyonkin/Flickr
Picture Credit: Sergey Galyonkin/Flickr

Dr Pepper TEN risks sharing the fate of ‘countless other’ product extensions’ that fail to cut it as independent brands, given declining distribution in the US C-store channel, one analyst warns.

Bonnie Herzog, MD, Beverage, Tobacco & Convenience Store Research at Wells Fargo Securities, said in a note last Friday that her firm surveyed retailers representing 10000+ C-stores nationwide to assess beverage trends over the recent Labor Day holiday period.

Respondents indicated Labor Day 2013 sales up 4% versus 2012, and said they expect Q3 sales to rise 3.1% year-over-year; Herzog said she was increasingly optimistic regarding H2 earnings for all beverage manufacturers.

But under the heading, ‘From Hero to Zero?’, Herzog said Wells Fargo’s survey results showed continued challenges for Dr Pepper Snapple’s (DPS’s) TEN platform, with 60% of respondents indicating weak repeat sales for a Dr Pepper TEN brand “not performing as well as expected”.

Asked if Herzog's fears were well founded, DPS director of communications, Chris Barnes, told BeverageDaily.com: "Dr Pepper TEN is a product we believe in and are continuing to invest in to drive consumer trial and awareness. Apart from that, I would defer to Larry’s [DPS CEO Larry Young's] comments during our Q2 earnings call."

DPS must master TEN distribution

Herzog suggested in her note the decline could be due to the fact that TEN’s direct store distribution (DSD) suppliers – primarily PepsiCo and Coke – were not necessarily behind their rival’s brand, with C-store respondents surveyed citing lack of execution at store level.

“Unfortunately…DPS has limited control over its DP10 brand and in-store experience…[yet] in-store product displays are one of the most effective means of driving purchases,” Herzog wrote.

“Without the ability to control the in-store experience of Dr Pepper TEN, we fear DPS has lost out on the opportunity to create a meaningful brand extension.”

The vast majority of Well Fargo retailer contacts carried Dr Pepper TEN following the initial launch, Herzog said, but the new survey showed that only 68% now did so.

Unfortunately, without a successful Dr Pepper TEN, we worry that the rest of the platform has little hope of long-term success,” Herzog said.

“Therefore, we are increasingly fearful that TEN may follow in the footsteps of countless other brand extensions that fail to become meaningful independent brands,” she added.

PepsiCo surrenders to Coke on price?

Herzog also suggests that aggressive promotions by Coke may have forced PepsiCo to call time on its attempt to improve US soft drinks margins via a new pricing strategy, at least in convenience stores.

C-Store retailer feedback showed that Coke aggressively promoted products over the summer to win market share from PepsiCo in direct response to its hybrid everyday value pricing strategy, she wrote, where this means higher holiday prices and lower non-holiday prices.

“We believe that PepsiCo may have been ‘forced’ to capitulate and respond to The Coca-Cola Company’s more aggressive pricing,” Herzog wrote.

“Our retailers have indicated that in most markets ‘PEP is following KO’s hotter pricing.’”

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I am trying to use some parts of this article in a paper that is properly cited and it doesn't let me copy and paste. I am not going to type all the parts I want to quote in my paper because that is a waste of time. I know that you want to protect your work, but really? I'm not trying to be lazy, just productive and the site makes this very frustrating. Now I am going to use another article and probably be one of the last to actually take an interest in this 'copy righted' piece.

Editor's Reply: I appreciate your frustration Josh and thanks for the comment. We are aware of this issue, but it is really the only way to stop people just cutting and pasting our articles and passing them off as their own elsewhere. I would say that, if you are serious about writing a paper and the content is worthwhile, is it truly a waste of time? Seriously, how long would it take you? There is no difference between copying online text and copying text in a book.

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Posted by Josh
02 December 2013 | 05h54