Dr Pepper Snapple Group (US)

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Dr Pepper Snapple Group is the world's third biggest carbonated soft drinks marketer behind Coca-Cola and PepsiCo. In addition to its two lead brands Dr Pepper and Snapple it controls a portfolio of more than 50 other products, although it now operates solely in North America and the Caribbean. The business was previously a division of the former Cadbury Schweppes. That group began a sell-off of what was then a global soft drinks operation at the end of the 1990s. An initial deal to transfer the business to Coca-Cola was partly blocked by regulators, forcing Cadbury to sell off its drinks units in several separate transactions. The final stage of the disposal, spinning off Dr Pepper Snapple as an independent company, was completed in 2008.

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Brands

Dr Pepper A&W Root Beer
Canada Dry Clamato
7 Up Diet Rite
Snapple dnL
Mott's Mr & Mrs T
Sunkist Nantucket Nectars
Schweppes Hawaiian Punch

Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 9th February 2017: Ads Of The Week: "Bai Bai Bai". Bai Brands (now controlled by Dr Pepper) also took us a little by surprise with this great spot, created inhouse. They had promised an appearance by part-owner and "chief flavor officer" Justin Timberlake, but no one had expected him to hand over his role to someone else, the wholly inimitable Christopher Walken, now surely an official National Treasure. Coming after last year's "Walken Closet" for Kia, it's another Walken triumph. In case you're confused, 'Bye Bye Bye' was one of the young JT's early hits, from his NSync days... Ah, sublime!

Adbrands Weekly Update 24th Nov 2016: In a rare acquisition, Dr Pepper Snapple Group agreed to buy Bai Brands, a maker of antioxidant beverages, for $1.7bn, around four times next year's projected annual revenues. DPSG already has a small investment stake in the business, and distributes Bai products through its network.

Adbrands Weekly Update 15th Jan 2015: Ads of the Week "Mop Dog". Who cares if it's soppy and sentimental, the new Dr Pepper spot from Deutsch LA is also completely adorable. Please please please mummy can we get a mop dog too? By the way, Breaking Bad aficionados may recognise the Dr Pepper delivery guy as actor Domingo "Krazy 8" Molina who in a previous incarnation got bike-locked to a post in Jesse Pinkman's basement halfway through season 1! Clearly he's actually a very nice chap and not a crazed drug dealer...

Adbrands Weekly Update 3rd Apr 2014: Industry watcher Beverage Digest published a gloomy analysis of the US liquid refreshment (LRB) market, saying that "challenging recent trends... continued and worsened in 2013". Total liquid refreshment volumes, including both still and sparkling beverages, fell for the first time in several years (by 1.6%), and the rate of decline among carbonates increased sharply to 3.0%, almost three times last year's fall. Sales of carbonated soft drinks (CSDs) peaked in 2003 and have been declining steadily ever since. The latest slide returns the sector to volume levels not seen since the mid 1990s. The big three of Coca-Cola, PepsiCo and Dr Pepper Snapple all suffered volume declines in both total carbonated drinks and the wider LRB market, and virtually all the top brands, including Coke, Pepsi, Mtn Dew and Dr Pepper suffered a fall. Of the top ten CSDs, only Sprite enjoyed an increase in volumes, and that by a measly 0.1%. Coke Zero crept into the top ten for the first time, displacing faster-declining Diet Dr Pepper. Coca-Cola's Dasani water was a rare exception in the wider LRB market with an impressive 5% hike in volumes. Rivals such as Nestle Pure Life and Poland Spring managed less than 1% apiece. Energy drinks currently sit just outside the top ten brands in both the CSD and LRB categories, but are likely to force their way in this year or next. Currently Monster Beverage Corp and Red Bull have share of 1.6% and 1.3% respectively, having both grown by 0.2% during 2013. At current rates Monster could take the #10 spot by volumes among CSDs from Coke Zero for 2014.

Adbrands Weekly Update 20th Feb 2014: The big three soft drinks giants reported results. Coca-Cola reported a modest 2% increase in total drinks volumes for the year, down from 4% in 2012, with still beverages outperforming sparkling at 5% and 1% respectively. North America was flat, and Europe down slightly. Financials were disappointing, with total revenues dipping by 2% to $46.85bn as a result of currency and deconsolidation of some international bottling operations. Those declines passed straight through to the bottom line, with net attributable income slipping by 5% to $8.58bn. Profits for 4Q slipped by more than 8%. By contrast, arch-rival PepsiCo did slightly better, mainly because of its snacks business. Revenues edged up by 1% to $66.42bn, while net income rose 9% to $6.74bn. Solid performance from Frito-Lay snacks and Latin American foods offset declines at the Americas Beverages business and in the Quaker Foods portfolio. The group also said it had completed the operational review demanded by activist investor Nelson Peltz, and decided not to pursue his proposal to spin off the drinks business into a separate company. Peltz has already rejected that conclusion and stepped up his campaign this week with a new set of demands. Dr Pepper Snapple Group's results were virtually identical to the year before, with revenues flat at just under $6.0bn and net income down very slightly at $623m.


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Background

Free for all users | see full profile for current activities: The group may lack the front-of-mind familiarity of Coke or Pepsi, but the businesses within what is now Dr Pepper Snapple Group trace the history of the soft drinks industry. Jacob Schweppe invented the technique for making artificially carbonated water in 1783 in Geneva, more than 100 years before the invention of Coca-Cola. Schweppe moved to London in the mid 1790s, and his soda water became so successful that by 1851, Schweppes & Co became the official supplier of what were described as "Temperance refreshments" for the Great Exhibition. In the later years of the century, the company expanded rapidly overseas, establishing factories in Australia and America, before going public in 1897, and setting up shop in Africa, France and Belgium. The British, French and Belgian colonies in Africa played a very significant part in the company's growth - Schweppes' tonic water contained quinine and was widely promoted as a preventative against malaria.

By the late 19th century, the technique for aerating water originally developed by Schweppe was widely used all over the world, not least in the drugstore soda fountains which had come to serve as the communal focal point for most small towns throughout America. In 1885, one year before the first batch of Coca-Cola was brewed up in Atlanta, a pharmacist named Charles Alderton blended a distinctive new syrup flavour by combining several different fruits and herbs. His employer Wade Morrison approved of the new soda, which quickly proved to be a hit with customers. To distinguish it from the other sodas sold in the store, Morrison named it after his friend and mentor, Dr Charles Pepper, in whose Virginia drugstore he had himself learned his trade. Its popularity spread so quickly that other drugstores began buying Dr Pepper syrup to serve to customers, and Morrison and Alderton were soon unable to keep up with demand. As a result, Morrison went into partnership with local bottler Robert Lazenby, owner of the Circle A Ginger Ale Company, to produce the drink commercially. A new company was formed, The Artesian Manufacturing & Bottling Company, and in 1904, Lazenby introduced the drink at that year's St Louis World's Fair, with enormous success. (A major event in American cultural history, the 1904 St Louis World's Fair was also, according to popular legend, the birthplace of the first hamburger, the first iced tea, and the first ice cream cone).

Soft drinks were rapidly becoming a very big business in the US, not least because Temperance campaigners were enjoying increasing success in their attempts to prohibit the sale of alcohol. In 1905, three US states outlawed liquor. That number rose to nine states by 1912, to 26 by 1916, and in January 1920 federal law prohibited the manufacture, sale or transport of alcohol in any part of the United States. Although Prohibition is best-known for the illegal opportunities it provided to bootleggers and organized crime gangs, its most lasting effect was to cement the popularity of soft drinks, which became the only cold beverage apart from water which could be legally purchased anywhere in the country. The next 13 years were to provide the platform for the national success of Coca-Cola, Dr Pepper and many other non-alcoholic drinks.

Charles L Grigg, for example, was an entrepreneur from St Louis, Missouri, who made his name with Howdy Orange, introduced in 1920. That particular beverage was gradually swallowed by the passing of time, but Grigg's follow-up proved longer-lasting. Having spent several years trying to come up other flavours, he finally he hit upon a new soda which he launched in 1929 as Bib-Label Lithiated Lemon-Lime Soda. The drink went down well with consumers, but the name didn't, so Grigg changed it a year later to 7 Up. (There is no clear explanation for the choice of name. Advertising later claimed that it derived from the "seven natural flavors" from which the drink was made, but this was patently untrue. Other explanations suggest Grigg named the drink after a local cattle brand or a term used in dice gambling.)

Despite the increasing dominance of cola giants Coke and Pepsi, especially after World War II, both Dr Pepper and 7 Up enjoyed considerable commercial success in the US. 7 Up in particular played on its differences, launching an advertising campaign in the US in the 1960s it which it proclaimed itself as the "Uncola", earning it a position as the country's third best-selling soft drink and the #1 non-cola. Later it pushed aggressively into international markets, and in 1978, 7 Up was acquired by Philip Morris Companies as a non-alcoholic partner to brewer Miller. But although sales rose, profits for all soft drinks manufacturers were badly damaged in the early 1980s by an increasingly bitter battle between the two cola giants which had prompted heavy discounting across the sector and fierce competition for bottling slots.

This culminated in a complete restructuring of the market during 1986. That summer, Philip Morris agreed a deal to sell 7 Up to PepsiCo. In response, Coca-Cola rushed through its own deal to buy Dr Pepper, by then the country's #4 brand. Smaller beverages manufacturers howled in dismay over the prospect of further consolidation of the two giants, and both deals were subsequently blocked by regulators. Instead Dr Pepper was snapped up by investment fund manager Hicks & Haas, while 7 Up was split in two. Pepsi was granted permission to buy its international operations; and after several months of additional negotiations, Hicks & Haas agreed a separate deal to acquire 7 Up in the US.

It was at this point that Cadbury Schweppes became involved in the US business. In the many years since launching its original tonic water, Schweppes had developed an extensive international profile as a marketer of drinks mixers. It had also acquired a number of other food and beverages products, mostly in Britain, including fruit drink Kia-Ora in 1943, Rose's lime cordial in 1957, jam companies Chivers and Hartley in 1959, Kenco coffee and Typhoo tea in 1968. In 1969, Schweppes merged with Cadbury, a confectionery company which had accumulated a similarly diverse portfolio, and by the mid 1980s the group had a mixed portfolio of products in the US, led by Schweppes, then the 10th largest soft drinks manufacturer. Keen to strengthen its bottling network, it agreed to back Hicks & Haas' purchase of Dr Pepper, acquiring a 33% shareholding in the business, but declined the opportunity to get involved with 7 Up as well. As a result Dr Pepper and 7 Up were forced to carry on for the next two years as separate companies, although they shared the same majority shareholder in Hicks & Haas.

It was soon obvious that such an arrangement served no purpose, and the two drinks businesses were merged in 1988 to form Dr Pepper/Seven Up Companies (DPSU). Cadbury Schweppes' shareholding was steadily watered down by this merger and a subsequent IPO, then built up again to 26% in the early 1990s. Meanwhile the British company had also acquired a collection of other beverages in the US including Canada Dry ginger ale, A&W root beer, Sunkist and Crush. By mid-decade it had itself grown to fill the #4 position in the US soft drinks market behind Coke, Pepsi and DPSU. Further consolidation made simple good sense and in 1995, after almost ten years of tentative involvement, Cadbury Schweppes acquired full ownership of DPSU for around $1.7bn, merging its existing products into the enlarged company. Further investment came early in 1998 with acquisition of independent bottlers Select Beverages and Beverage America for $724m, in partnership with investment firm the Carlyle Group. These were merged with DPSU's existing bottling network to form what was rebranded as The American Bottling Company.

Ironically, while Cadbury Schweppes' American soft drinks business was growing, its beverages divisions elsewhere around the world were finding the going very tough indeed. Lacking as strong a heritage of non-cola beverages, other markets had come to be wholly dominated by the combined might of Coca-Cola and Pepsi and their various spin-off products, and Cadbury Schweppes had been forced to agree a complex network of bottling and distribution agreements with local subsidiaries of the two US giants. Cadbury had already combined its UK drinks business with that of Coca Cola in 1987. As the relationship between the two partners became increasingly strained, partly as a result of their growing rivalry in the US, the British company took the decision to pull out of the joint venture in 1998, selling its shareholding and rights to its brands in the UK to Coke.

At the end of that year, as a result of financial problems in other markets as well, Cadbury announced its intention to sell all of its drinks brands outside the US to Coca-Cola for a total $1.8bn. Almost immediately that deal faced a barrage of objections from competition authorities because of the further increase it would make in Coke's already substantial market share. Europe, where Coke was already the focus of several anti-competitive investigations, proved the biggest obstacle. There followed months and months of negotiations with regulators in each of the objecting territories. In order not to delay the entire process, the two companies agreed the transfer of the first chunk of the drinks business in summer 1999, with Coca Cola paying $700m for control of more than 20 brands in 155 countries. A few months later, South African and New Zealand regulators also approved the purchase, and further deals were agreed. After a year of further wrangling, plans to transfer the brands in France, Spain, Belgium, Netherlands, Portugal and Australia were finally abandoned in summer 2000.

Cadbury immediately set about using cash from the Coke deal to bolster its remaining drinks businesses. DPSU greatly strengthened its position in the US with the acquisition of several of its third-party bottlers, including Dr Pepper Bottling of Texas. Another key acquisition, for $1.45bn, was Snapple Beverages, a specialist in the fast-growing sector of premium iced tea. The Snapple business had been launched in New York in the early 1970s as The Unadulterated Food Corporation by Leonard Marsh, Hyman Golden and Arnold Greenburg. They set out to make a range of fruit-based drinks for sale through health food stores. The most successful of these was a carbonated organic apple drink, Snapple, which eventually gave the company its name. The move into iced tea didn't actually happen until the late 1980s, but proved far more financially successful. In 1997, Snapple was acquired by restaurant group Triarc, but sold on on to Cadbury Schweppes three years later.

Cadbury Schweppes' other purchases included the Slush Puppie frozen drinks business (for almost $17m), followed by the ReaLemon and ReaLime brands. It also strengthened its hand in its remaining international markets. In 2000, the Australian portfolio was expanded with Spring Valley Juice and Wave flavoured milk. Mid-2001 Cadbury acquired La Casera, Spain's third largest soft drinks manufacturer, and in September, after almost a whole year of negotiations, the group confirmed its acquisition of hotly contested French soft drink group Orangina-Pampryl from Pernod-Ricard. In 2002, the group bought the 72% shareholding in German drinks business Apollinaris & Schweppes it didn't already own for E151m.

In a major turnaround, Cadbury resurrected plans to sell the European beverages division in 2005, and eventually agreed a deal to sell the entire European portfolio to private equity groups Blackstone and Lion Capital for E1.85bn. Apollinaris was subsequently acquired by Coca-Cola; while German rights to Schweppes and Orangina were transferred to brewer Krombacher. Orangina-Schweppes of France was established as an independent company controlled by private equity investors, but was eventually acquired by Suntory of Japan in 2009. Cadbury's last remaining drinks business, Cottee's of Australia, was sold to another Japanese group, Asahi Breweries, in December 2008. see full profile for current activities


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