Dr Pepper determined to reverse diet decline

by Monica Watrous
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Diet soft drinks continue to drag down results for Dr Pepper Snapple.

 

PLANO, TEXAS — A piece of Dr Pepper Snapple Group’s push to reverse the diet soda slump is education. The beverage maker wants consumers to know its controversial artificial sweetener is safe.

“There is nothing wrong with aspartame,” said Larry Young, president and chief executive officer, during an Oct. 23 earnings call with financial analysts. “It’s one of the (most) tested food ingredients there are.”

Although the decline in diet carbonated soft drinks has hit PepsiCo and The Coca-Cola Co., too, Dr Pepper Snapple admitted fault in failing to promote its own diet products.

“We are not perfect at anything, okay?” said Marty Ellen, chief financial officer. “And we hope you never believe we are. So, we ourselves are looking at areas where we maybe haven’t executed as well in diet. That has changed recently. So, yes, more advertising directed at the proposition of the brand and even in our own system, a little better execution.”

The company is planning increased marketing efforts specifically for its diet brands as well as continued support behind its TEN platform of 10-calorie carbonated soft drinks.

“When you have something out there that is declining at 7%, that can bring the others down,” Mr. Young said. “So, that’s why we’re putting the new media campaigns together, also continuing our push behind our TEN products. Our TEN products, we continue to get new distribution with them. And I think sometimes it helps on having a product out there with 10 calories that doesn’t say diet on it, and so we’re covering all of the angles there.”

Additionally, Dr Pepper Snapple is set to launch a range of naturally positioned sodas sweetened with stevia and sugar. Under the Dr Pepper, 7Up and Canada Dry brands, the 60-calorie beverages are being tested in Texas, Chicago and Des Moines, Iowa, with plans to expand into additional regional markets next year.

“And what we’re going to do on this, we really want to understand the consumer and the customer,” Mr. Young said. “We’re not going to be in a big hurry. We want to understand, where does it need to be? Who is the consumer? Where does packaging, pricing need to be?

“We’re going to test different formats. And when it starts to spread out, I mean, it will be on how the results come in. Of course if it’s just stellar, you’ll see us go big time, but right now we’re just doing a wait-and-see. We want all of the information. We want the data, and then we will make our decisions from that.”

Net income for the third quarter ended Sept. 30 slipped 9% to $188 million, equal to 97c per share on the common stock, down from $207 million, or $1.02 per share, in the comparable quarter. Net sales increased 3% to $1,583 million from $1,543 million the year before.

During the quarter, bottle case sales volume climbed 1%, driven by 1% gains in carbonated soft drinks and non-carbonated soft drinks. High single-digit increases in Canada Dry and Schweppes and low-single-digit growth in Sunkist offset a 2% decline for Dr Pepper volume, dragged down primarily by diet products. Fountain food service volume increased 1% during the quarter. Leading growth in the non-carbonated beverage segment were Clamato, up 7%, waters (3%) and Snapple (2%). Mid-single-digit growth in Snapple Premium partially offset a de-emphasis on value products. Meanwhile, Hawaiian Punch and Mott’s declined 2% and 1%, respectively.

Regionally, volume was flat in the United States and Canada and increased 10% in Mexico and the Caribbean.

Dr Pepper Snapple has raised its full-year guidance for earnings per share growth in a range of 11% to 13%.

“Our priorities remain unchanged,” Mr. Young said. “We will continue to execute our strategy in a challenging environment, ensuring that we build our brands while executing with excellence in the marketplace and driving productivity throughout the business.”
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