Europe makes Cadbury Schweppes drinks suffer

Related tags Cadbury schweppes Sucralose Coca-cola Dr pepper snapple group

Diet trends help Cadbury Schweppes to push forward in the US, yet
its European soft drinks arm looks to be a weak link as tough
market conditions hamper sales, profits and margins, reports
Chris Mercer.

The confectionery and soft drinks firm's half-year interim sales rose six per cent to £3.1bn and net profits went from £230m to £244m.

Diet-loving Americas

Cadbury Schweppes' Americas Beverages division benefited from its focus on developing diet variants of core brands. The company's diet brands grew 11 per cent in volume and were a "primary driver" in pushing up like-for-like sales by five per cent.

Theses figures indicate that carbonated beverages can still make money in North America by accommodating consumer health drives, though a raft of poor publicity, such as recent calls for health warnings on fizzy soft drinks due to sugar content, pose a problem.

Cadbury's 7 Up brand lost ground in 2004 but has slowly picked up in 2005. It has been led by 7 Up Plus, which contains real fruit juice, Tate & Lyle's Splenda sucralose sweetener and added calcium.

A company spokesperson said the group was pleased, but that it still had a long way to go to match the diet portfolios of PepsiCo and Coca-Cola.

Even so, diet brands and new launches under the Dr. Pepper brand, such as Cherry Vanilla, pushed Cadbury Schweppes' US market share up 70 base points to 17.7 per cent.

The group also invested heavily in re-invigorating its non-carbonated portfolio, including a new range of Snapple diets and the launch of Mott's Plus. Volumes are now going in the right direction, yet "the costs of supporting this growth were greater than expected"​, the firm said.

Europe coming up short

The situation is tougher in Europe and Cadbury Schweppes reported like-for-like sales down one per cent in the first half. Total revenues crept up thanks to the acquisition of the remaining Orangina territories, mainly the UK.

The firm said restructuring in 2004 had led to improvements throughout the production chain, from innovation to distribution. But, operating profit fell by two per cent (six per cent without help from acquisitions and exchange rates) and margins dipped 0.6 per cent.

Price-pressure from retailers and increased spending on marketing and innovation were blamed.

A Cadbury Schweppes spokesperson said the firm was "feeling ok"​ about its European beverages and the division had seen "share gains in the last four weeks"​.

The firm refused to comment on speculation it may be looking to sell the business.

An analyst at Pereire Tod​ told​ last week that Cadbury may well try and sell the European soft drinks arm, which includes the Orangina, Oasis and Schweppes brands, as it went "much more down a confectionery route"​.

He also said the firm had tried to sell off the same portfolio some years ago, but a buyer was not found and talks with Coca-Cola had hit problems with regulators over market concentration and competition issues.

The division lost market share across its key markets of France, Spain and Germany in 2004. Sales also declined, though margins were saved by cost savings.

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