Core Hydration, High Brew Coffee, Dr Pepper Snapple
Dr Pepper Snapple Group recently inked distribution deals with Core Hydration and High Brew Coffee.
PLANO, TEXAS — Dr Pepper Snapple Group, Inc. credits partnering with such brands as Bai, Vita Coco, Bodyarmor and Fiji as a key to quickly capturing growth in emerging beverage categories. Most recently, the Plano-based company inked distribution deals with Core Hydration, a purified water beverage with electrolytes and minerals, and High Brew Coffee, a ready-to-drink cold brew coffee brand.

These opportunities allow Dr Pepper Snapple to ‘pivot with the consumer,’ said Marty Ellen, chief financial officer.

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

“We’re not fighting the consumer; we’re not trying to push back on the consumer and throw our money and resources as an effort to try to do that,” Mr. Ellen said during an April 27 earnings call with financial analysts. “We’re not going to try to make brands that consumers have said serve a certain purpose for them … and try to change them and change the perception of them in the marketplace.

“So of course, this is about innovating with a very, very fast-changing consumer. And while we are getting growth in some of these categories today, and that’s really good, we’ll see where the growth curves go. Some may fade over time, just because consumers change over time, and they’re changing quickly. So we play this without capital at risk, and we get to capture the growth quickly.”

Mr. Ellen described the partnerships as a win-win. The brands benefit from Dr Pepper’s powerful distribution system, 170 warehouses and 8,000 trucks.

BodyArmor Superdrink, Bai, Fuji Water, Vita Coco, Dr Pepper Snapple Group
Dr Pepper Snapple has partnered with such brands as Bodyarmor, Bai, Fiji and Vita Coco.

“The whole strategy is about capturing the passionate spirit of these people, and bring something to the party that they absolutely need and we need,” Mr. Ellen said. “I don't know how we could ever have had an innovation pipeline like we’re seeing through the (allied brands). Would we have ever invented coconut water, for example, and had the success in Vita Coco? Would we ever have created a Bai and had the success of a Bai?

“If Larry (Young, president and chief executive officer) had come to you and said … ‘We are now going to compete in sports drinks,’ and you know it’s a highly competitive category, anybody would have said, ‘You’re crazy,’ and they would have had the right to say that. But here we come with a brand (Bodyarmor) that we don’t have capital at risk in any meaningful way.”

Net income in the first quarter ended March 31 was $182 million, equal to 97c per share on the common stock, up 16% from $157 million, or 82c per share, in the same period of the year before. Net sales increased 2% to $1,487 million from $1,451 million. Foreign currency translation reduced net sales and earnings per share by 2% and 1%, respectively.

Bottler case sales volume for the quarter increased 2%, with carbonated soft drinks and non-carbonated beverages both growing 2%.

Dr Pepper and Crush Orange soda, Dr Pepper Snapple Group
Dr Pepper increased 4% and Crush grew 6% in the quarter.

“Brand Dr Pepper increased 4%, reflecting growth in our fountain food service business,” Mr. Young said. “Over half of this growth was due to timing of sales to a large bottling customer that we had planned for in the second quarter. Our Core 4 brands decreased 3%, as growth in Canada Dry was more than offset by declines in 7UP, Sunkist Soda and A&W. Crush and Schwepps grew 6% and 10%, respectively, on increased promotional activity at a large retailer. Squirt grew by 3% and Penafiel increased 5% in the quarter, while lapping 20% growth a year ago. All other C.S.D.s decreased 1% in the quarter.

“In non-carbs, Snapple increased 4% in the quarter, Hawaiian Punch decreased 7% as planned, driven by price increases on single-serve packages, and Mott’s decreased 4%, again as planned, on lower promotional activity and continued declines in the juice category. Clamato grew 10% in the quarter, primarily on increased promotional activity, and our water category grew by 22%. Aguafiel grew double digits, and continued strong contribution to growth were also driven by a number of our allied brands, including Bai and Fiji. All other non-carb brands decreased 2% in the quarter.”

To spark growth in its sparkling beverage portfolio, the company is rolling out 7.5-oz slim cans across its key carbonated soft drink brands and direct-store delivery network. Also on tap is the Pick Your Pepper program, geared toward millennials, which will offer 150 unique labels on 20-oz single-serve bottles.

For the full year, the company expects net sales growth of approximately 2%, which includes a 1% headwind from foreign currency translation. The company now expects full-year e.p.s. to be at the high end of its previously announced range of $4.20 to $4.30, based on lower-than-expected currency headwinds.