Dr Pepper Snapple (DPS) reported its results for the quarter ending September 30 this morning, with net sales up 2.5% to $1.583bn year-on-year and net income down 10% to $188m, although operational income rose 5% to $316m.
Bottler case volume sales volumes (sold to by DPS and its bottlers to retailers and distributors rose 1% overall due to 1% growth for both CSDs and non-CSDs, and while diet CSDs continued to struggle (down 7%) Penafiel was a surprise bright spot, with volumes up 25% (albeit off a relatively small base) due to product innovation.
Deutsche Bank analyst Bill Schmidt asked DPS CEO and president Larry Young about impressive recent growth for sparkling waters in the US. Did he think the trend would continue, or was it just a fad?
“I think it’s a trend, and Penafiel, Schweppes and Canada Dry, we’re putting a lot of programs together on it this year and next – we believe it’s here to stay,” Young replied.
Bought by Cadbury Schweppes in 1992 and thus inherited by DPS when the latter was spun-off from Cadbury in 2008, Penafiel is a Mexican mineral water brand that also stretches its sparkling waters proposition across to CSDs – via Mandarin Soda, Strawberry Soda, Apple Soda and Grapefruit Soda flavors.
‘We have very targeted Hispanic markets that we work in’: Larry Young, CEO
Later on the call, Cowen & Company analyst Vivien Azer referred to Penafiel as a “home run” for DPS, and asked about plans to extend the brand’s distribution within the US.
“In our Hispanic programs in the US we’re bringing in Penafiel from Mexico. We’re just starting right now but are very excited by the results we’re seeing to date, and we’ll expand that,” Young said.
“We have very targeted Hispanic markets that we work in – we’re starting to get some real learnings from bringing the Penafiel in from Mexico,” he added.
DPS is marketing the brand to Hispanics as a natural, reduced sugar, antioxidant rich beverage, with authentic roots – it is manufactured in San Nicholas near the Penafiel water source.
DPS ‘very concerned’ by continued diet CSD decline
Turning to the thornier issue of diet CSDs Young told Azer DPS remained “very concerned” by the category.
“When you have something out there that’s declining 7%, that can bring the others down,” he said.
“That’s why we’re putting new media campaigns together – also continuing our push behind our TEN products. We continue to get new distribution for them, and I think sometimes it helps having a product out there with 10 calories that doesn’t say ‘diet’,” Young said.
Alongside keeping up its media spend on diets (Diet Dr Pepper in particular), Young said the company would continue to push TEN (DPS’s 10-calorie CSD portfolio) and also educate consumers on artificial sweeteners.
“There is nothing wrong with aspartame – it’s one of the most tested food ingredients there is,” he said.
DPS also plans an extended test for its sugar/stevia-sweetened 60-calorie versions of Dr Pepper, 7UP and Canada Dry in early 2015, after trials earlier this year in Texas, Chicago and Des Moines (Iowa).
“We really want to understand the consumer and the customer. We’re not in any big hurry,” Young said.
“We really want to understand where does it need to be, who is the consumer, where does packaging and pricing need to be? We’re going to test different formats,” he added.
“When will it start to spread out? We’ll see when the results come in. Right now we’re just doing a ‘wait and see’. We want all the information then we’ll make our decisions from there.”