Schweppes goes soft on Dr Pepper

Related tags Soft drinks Coca-cola Cadbury schweppes

Cadbury Schweppes could consider selling off its US soft drinks
business, Dr Pepper/7-Up, if it decides that such a move would
offer greater value to shareholders.

The US soft drinks business of Cadbury Schweppes​ could be hived off into a separate company as part of the UK group's ongoing efforts to restructure its business after a number of major acquisitions.

In an interview with the Sunday Telegraph​ this weekend, Cadbury's CEO Todd Stitzer raised the possibility that the Dr Pepper/7-Up unit in the US could be demerged - although he stressed that this was just one of several options being considered to help overhaul the business.

After several years of good growth - and the suggestion that the two giant cola groups had finally found a rival worthy of the name - Cadbury's US business has had a tough time in the last year or so, mainly due to the launch of a number of new products by Coca-Cola and PepsiCo during that time.

This not only made it harder for Cadbury's brands to stand out in an increasingly crowded soft drinks market - especially with the increased marketing activity around the new brands such as Vanilla Coke and Pepsi Twist keeping them firmly at the forefront of consumers' minds - but it also meant that production of the brands was impacted.

Cadbury is still reliant on third-party bottlers for a large amount of its US production - despite a number of bottling acquisitions and exclusive partnerships - which means that its products are bottled by companies working primarily for (and often partly owned by) Coca-Cola or PepsiCo. So when these two companies launch new brands, and therefore require more bottling capacity, Cadbury loses out.

Stitzer told the paper that a demerged US soft drinks business could be worth as much as $7 billion, but stressed that a complete sale of the unit was not on the cards at the moment.

Last week Cadbury reported that it was to axe up to 5,500 jobs as part of its ongoing restructuring efforts, made necessary by acquisitions such as Snapple, the soft drink maker, and Adams, the sugar confectionery giant.

A new strategy, called Fuel for Growth, introduced by Stitzer is designed to cut costs at the British group by £400 million a year by 2007. Another programme, Managing for Value, aims to increase shareholder returns, and Stitzer told the paper that it would be within this framework that any eventual decision to sell the US soft drinks arm would be made.

"We will make a determination from a strategic perspective whether we think that competitive advantage and value creation is going to be something that goes on ad infinitum, or relatively consistently into the future, or if it doesn't,"​ he told the paper.

"When we make that determination then I'm sure there will be a range of options that become apparent one way or the other."

There is also no question of the group's other soft drinks businesses (Schweppes, Orangina) being slated for sale - at least at the moment.

Despite acquisitions such as Snapple in the US, Cadbury's core business remains confectionery, all the more so following its acquisition of Adams last year which elevated it to the global number one spot. And while the US soft drinks arm accounts for 31 per cent of turnover, according to the paper, the increasing competitive pressure there may make it easier for the company as a whole if it is spun off.

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