D.P.S. puts its faith in flavors

by Editorial Staff
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DALLAS — Noting that, year-to-date through July, non-cola carbonated soft drinks accounted for 51% of all carbonated soft drink sales, up nearly 5 points in the past six years, Larry Young, the president and chief executive officer of the Dr Pepper Snapple Group Inc., said his company is positioned to benefit as consumers continue to seek beverage variety. Mr. Young made the comments during the Barclays Capital Consumer Conference, which was held in September.

“We believe that in the next five years non-cola C.S.D.s will grow to 55% of total C.S.D.s, a shift that’s worth $4 billion at retail,” Mr. Young said. “And as the leader in flavors, D.P.S. will clearly benefit from this. Non-cola C.S.D.s have grown at the expense of colas for the past 20 years and we expect this trend to continue.”

He continued, “With expanded availability and clear segmentation, loyal C.S.D. drinkers no longer default to colas as their C.S.D. of choice. Flavored beverages also indexed higher than colas with the fast growing Hispanic and African-American population.”

In his presentation, Mr. Young outlined six priorities for improving the performance of the company’s product portfolio.

“We will build our brands through the following tactics and programs — brand investments, innovation, win the West, win the Hispanics, rediscover brands, and caloric transparency,” Mr. Young said. “By the end of this year our marketing investments will be up more than $110 million, or 30%, since 2008. We’ve increased consumer communications with additional media on Dr Pepper, Canada Dry, Snapple and Mott’s.”

New products introduced by the company in 2011 include Blue Raspberry Crush, Snapple Papaya Mango Tea, Dr Pepper TEN and Mott’s Garden Blend.

“Our R.&D. team links science and technology with consumer insights to develop an innovation pipeline that is truly differentiated and I believe will fuel growth in the years ahead,” Mr. Young said. “To support this growth, we’ve made strategic investments in areas such as flavor technology, sensory, and consumer guidance research and ingredient science.”

In the western U.S., Mr. Young said D.P.S.’ Victorville, Calif., facility has opened the western market for the company and improved its access to the nation’s Hispanic population.

“Since its opening in 2010, our Victorville, California, facility is fueling expansion of Mott’s, Hawaiian Punch and mixers on the West coast,” he said. “Year-to-date, we’ve gained almost 1 point of share in the juice drinks category on the West coast.

“The Hispanic population has grown to 50 million in the U.S. and is driving more than 50% of the country’s population growth. Hispanic consumers over-index on C.S.D.s, and in particular flavored C.S.D.s. We believe our portfolio is ideally positioned to win with these consumers.”

But D.P.S. also has faced its share of challenges during the year. Marty Ellen, executive vice-president and chief financial officer, said packaging and ingredients inflation has posed a significant headwind for the company.

“Today, packaging and ingredients account for about 75% of our total cost-of-goods basket,” Mr. Ellen said. “Packaging, namely cans, PET, glass, paperboard and labels, is about 50% of the basket. While ingredients, things like sweeteners, juice concentrates, apples, flavors, colors and acidulants, are about 25% of the basket.”

Like other food and beverage companies, D.P.S. is focusing on operational efficiencies to help offset some of the increases in raw material costs. Through its rapid continuous improvement (R.C.I.) program D.P.S. is expecting to generate approximately $150 million in savings during the next three years.

“Today, we’re seeing more than half of the productivity in inventory reductions and capital avoidance,” Mr. Allen said. “This is fairly common in the early periods of lean implementations.”

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