Natural beverages on tap for Dr Pepper

by Monica Watrous
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PLANO, TEXAS — Dr Pepper Snapple Group, Inc. hopes to sweeten soft drink sales by adding less sugar.

Following a successful rollout of its TEN platform of 10-calorie sodas, the company has developed a line of 60-calorie versions of some of its brands, sweetened with a proprietary blend of stevia and sugar. Positioned as a natural beverage line, the products will be tested in select markets this year.

“We hear what people are telling us — they want natural,” said Larry Young, president and chief executive officer, during a Feb. 12 earnings call with analysts. “We want to see if they buy the natural and where we should put the natural? … we will decide later what type of roll-out we will do on it.”

Driven in part by industry-wide declines in diet drinks, Dr Pepper Snapple also will continue to invest heavily in TEN, which offers a similar mouthfeel and taste of a sugared beverage but with 10 calories per serving. Citing research from Nielsen Homescan, Mr. Young said the product is attracting lapsed consumers and occasions back to the category.

“The repeat rates on the platform are strong — nearly three times higher than trial rates telling us that once a consumer tries the product, they will come back for more,” Mr. Young said. “Based on these learnings, we will focus our 2014 efforts on consumer education and awareness to drive trial of products, and our new media campaign does just that.”

A reduced-calorie tea from Snapple also is being tested across several markets.

“Consumers have told us they want a less sweet tea,” Mr. Young said. “Straight Up Tea has a true tea taste and is made from all-natural black tea with a touch of sugar and 40 calories per serving.”

To capitalize on growth in carbonated water, Dr Pepper Snapple is adding a peach mango flavor to its Canada Dry sparkling seltzer waters and expanding the line into new markets, as well as launching a line of Schweppes sparkling waters nationwide.

Additionally, the company said it plans to leverage its allied brands of Vita Coco coconut water and Bai juices to gain entry into the natural and organic category.

“We have been and will continue to launch new innovation that offers consumers options to help them lead balanced lifestyles,” Mr. Young said.

Facing the “toughest c.s.d. category headwinds” in his career, Mr. Young said Dr Pepper Snapple held dollar share and gained distribution and volume during the year.

For the year ended Dec. 31, 2013, the company had net income of $624 million, equal to $3.08 per share on the common stock, which compared with $629 million, or $2.99 per share, in fiscal 2012. An unrealized commodity mark-to-market loss in 2013 and gain in 2012 affected earnings comparability.

Net sales for the year totaled $5,997 million, up slightly from $5,995 million the year before.

Fourth-quarter income dropped to $156 million, or 78c per share, from $170 million, or 82c per share, in the same prior-year period.

Net sales slipped to $1,463 million from $1,484 million in the fourth quarter of the previous year.

In bottler case sales volumes, both carbonated soft drinks and non-carbonated beverages declined 2% during the quarter and year. Fountain food service volume increased 2% in the quarter and was flat for the year. Sales volume decreased 4% during the quarter and 3% for the year.

Looking ahead, Dr Pepper Snapple expects full-year net sales to be flat to up 1%, reflecting lower packaging and ingredient costs.

As for participation in the forthcoming launch of a cold beverage system from Green Mountain Coffee Roasters, Inc. and the Coca-Cola Co., Dr Pepper Snapple said it may consider the opportunity with regards to its bottlers.

“I think we all have a lot of work to do on how we do this as partners with our bottlers,” Mr. Young said. “They’ve got franchises out there that my job is to make sure that we protect their equity, and we’ve also got to look at it and make sure we are doing the right things for the future on growth. We might have to do some things different. … It is a different way of going to market than we have had before, and I think all of us in the industry are sitting down, figuring out how do we do this the right way where it is a win-win for everybody.”
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