Dr Pepper Snapple Group: FY2014

Dicey ground for diet drinks, but Dr Pepper Snapple bullish on low-calorie TEN platform

By Rachel Arthur

- Last updated on GMT

Dicey ground for diet drinks, but Dr Pepper Snapple bullish on low-calorie TEN platform

Related tags Dr pepper Dr pepper snapple group Soft drink

Dr Pepper Snapple Group says it is battling headwinds against carbonated soft drinks – particularly diets – something it expects to see continue into 2015. But it remains upbeat about a ‘strong performance’ in 2014.

Releasing its FY2014 results yesterday, DPS said full year net sales increased 2% (from $6bn in the year ending December 31 2013, to $6.12bn in 2014).

Bottler case sales, FY2014

  • Peñafiel volume up 21%
  • Core 4 brands (Canada Dry, 7UP, A7W, Sunkist) up 2%
  • Schweppes up 10%
  • Dr Pepper volume down 2%
  • Hawaiian Punch down 7%
  • Mott's down 1%
  • Clamato up 7%
  • Snapple up 1%

Its Core 4 brands (Canada Dry, 7UP, A&W, and Sunkist) grew by 2% in bottler case sales volume, driven by Canada Dry in particular; however, Dr Pepper volume fell 2% due to continued diet declines.

DPS's golden child was Mexican sparkling mineral water Peñafiel – with sales up 21% in the year – which will take on the US market this year. With sales up 17% over the last quarter, DPS attributes the brand's success to innovation.

Overall bottler case sales volume increased 1%: carbonated soft drinks increased 1% and non-carbonated beverages decreased 1%.

Diet drinks

DPS's "achilles’ heel"​ in CSDs continues to be diet drinks, said CFO Marty Ellen in an earnings call yesterday, adding the challenge was to improve performance in this sector.

Larry Young, president and CEO, pledged to keep pushing TEN (Dr Pepper’s 10 calorie version) forward, a product it wants to use to bring lapsed users back to carbonated soft drinks. 

“From our research, we are showing a lot of them went to fruit juices, to sports drinks. Now with TEN, they are coming back to CSDs,” ​he said.

dr pepper ten
Dr Pepper Ten

“But…it takes a long time to build a brand. We told everybody in the beginning, when we first came out with Dr Pepper TEN, three years ago, that we were going to stay committed to it and continue to build it. And all the results we're looking at tell us we are still on the right track.”

Mexico still sweet

Mexico introduced a nationwide sugary drink tax at the start of 2014; but Dr Pepper appears to be unfazed by the legislation.

For Latin American beverages, net sales increased 17% driven in the latest quarter, driven by higher pricing associated with the pass-through of the sugar tax in Mexico, favorable product and package mix and increased sales volumes.

SOP increased 73% thanks to net sales growth, lower commodity costs and ongoing productivity improvements (partially offset by increases in logistics costs and certain operating expenses).

Analyst Caroline S. Levy noted Mexico had been a "spectacular"​ market for Dr Pepper in 2014 – saying Coke and Pepsi struggled in their quarters – and asked whether Dr Pepper was confident it could continue to buck the trends.

“We're going to grow,” ​said Young. “They've done a great job really growing right through the headwind of the sugar tax… a lot of our core sugar beverages did take a hit, that wasn't unexpected.”

But he added initiatives and sales efforts showed great innovation, and distribution is expanding.

dr pepper penafiel

‘I think you’re going to see some great results from these’

Sales of Mexican sparkling mineral water Peñafiel increased 21% in the year. The company wants to build on the success of its golden child by expanding into the US with a vengeance this year.

Speaking about DPS' Hispanic strategy, Young said, A lot of us think we have packages and brands they want, but the Hispanic consumer is very savvy. And they want to see something from Mexico.

“Marty and I were in the trade a while back, where we had some of our products in our regular U.S. packaging, and the owner of the chain of Hispanic supermarkets told us they were fakes and that the consumer knew it.

“Where we've brought the Peñafiel from Mexico in, the success has been tremendous. And so we're looking forward to bringing this in, especially into our Hispanic markets, where we have our focus points. And it's still early but I think you're going to see some great results from these.”

Plans for 2015

Ellen says it expects 2015 will see carbonated soft drinks drop a little, with the non-carbonated soft drink portfolio up – ‘say, low to mid-single digits’

Young added, “This year, we're expanding the test of naturally sweetened CSDs to three key regional markets and launching Snapple Straight Up Tea, a new line of unsweetened and slightly sweetened teas in 18.5 -ounce PET bottles.”

“We're also expanding distribution on our glass bottle CSDs and launching Hawaiian Punch in a pouch format.

“We'll continue to leverage marketing return on investment to ensure we're maximizing our investment returns, and continue our R&D efforts on sweetener development.”

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