Partnerships prove powerful for Dr Pepper Snapple

by Monica Watrous
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Bai Juice and Fiji Water, Dr Pepper Snapple Group
Third-party brands, including Bai and Fiji, helped drive growth for Dr Pepper Snapple during the recent quarter.

PLANO, TEXAS — Partnerships are becoming a more powerful growth engine for Dr Pepper Snapple Group, Inc. The Plano-based company benefitted in the recent quarter as the distributor of such brands as Bai juice drinks and Fiji water.

Marty Ellen, Dr Pepper Snapple
Marty Ellen, c.f.o. for Dr Pepper Snapple

“We look to these kinds of companies to actually contribute very much to our innovation,” said Marty Ellen, chief financial officer, during an Oct. 22 earnings call with financial analysts. “And we take the view that probably the next level of breakthrough innovation may not come from inside the company but will come from passionate entrepreneurs who see the opportunities as we all see them in terms of where the consumer is going but can have an environment that can nurture and breed these kinds of brands from really nothing into something over time. Of course, they need a distribution partner, and that’s where we come in.”

Partnering with Dr Pepper Snapple Group is an attractive solution for startup beverage brands, said Larry Young, president and chief executive officer.

Larry Young, Dr Pepper Snapple
Larry Young, president and c.e.o. of Dr Pepper Snapple

“A lot of these young entrepreneurs aren’t really ready to sell their business, and they want to see them built,” Mr. Young said. “They think it’s a home run when they get into our system because we’ve got guys that are the ‘scrappy’ out there on the street. We are used to working with a lot of smaller brands and how to fight for space and where to merchandise it.

“So the only other option is really to go through some beer distributors, which become very disjointed and dysfunctional on trying to do a national program. They can go with us, and we can (get them) a Target, a Kroger, or Wal-Mart and pretty well have guaranteed distribution across the country.”

For Dr Pepper Snapple, these distribution agreements provide opportunities to keep pace with consumer trends.

“We spent a lot of time this year interviewing some 35,000 consumers on their last beverage occasion and what drove them emotionally and functionally so we can try to understand where all of our brands play,” Mr. Ellen said. “And there’s white space on what we call that demand map, and that white space can be filled, and much of it more likely will be filled maybe by us partnering with other people than trying to invent a new brand. It’s hard to nurture that inside a larger company.”

Growth from allied brands helped boost financial results for Dr Pepper Snapple in the third quarter ended Sept. 30. The company had net income of $202 million, equal to $1.06 per share on the common stock, up 7% from $188 million, or 97c per share, for the year-ago period. Net sales rose 3% to $1,630 million from prior-year sales of $1,583 million. Results included a 3% increase in sales volumes, favorable product and package mix and price increases that were partially offset by unfavorable foreign currency translation and higher discounts related to food service fountain drinks. 

Dr Pepper and Diet Dr Pepper
Dr Pepper sales were flat this quarter, while Diet Dr Pepper declined 4%.

For the quarter, bottler case sales volume increased 2%. Carbonated soft drink volume climbed 2%, led by growth in Peñafiel sparkling mineral water, Schweppes, Canada Dry and Squirt, which offset declines or flat results for Dr Pepper, Crush, 7Up, Sunkist and A&W root beer. Diet Dr Pepper declined 4%, which Mr. Young said tracked ahead of overall diet category performance. Non-carbonated beverage volume grew 4%, driven by growth in Bai, Fiji, Clamato and Snapple.

“We’ve got the Dr Pepper back up to flat,” Mr. Young said. “We’ve got our Diet Dr Pepper that is outperforming the category. We’re having closing distribution and availability voids out there. We have great allied partners. So it’s a combination of several different factors in there that are all hitting perfect for us right now.”

For the full year, the company now expects net sales to increase approximately 2%. Foreign currency translation is expected to negatively affect sales by 2%. Based on strong year-to-date performance, the company now projects total company sales volume for the full year to increase about 1%, reflecting growth in non-carbonated beverages and flat performance for carbonated soft drinks.
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