Dr Pepper Snapple Group Inc. (DPS) recently acquired its bottling company of the west, Dr. Pepper/7-UP based in Reno, Nev. Following the acquisition, Dr Pepper Snapple Group will have business assets as well as the distribution rights of the bottling company’s territory.
Dr. Pepper/7-UP bottling company’s territory includes northern Nevada, northern and western California, and Idaho. The bottler distributes well-known brands like Dr Pepper, Snapple, 7UP, Sunkist soda, A&W and RC Cola, and other DPS-allied brands.
The acquisition and subsequent integration of the Dr. Pepper/7-UP bottling company into Dr Pepper Snapple Group’s will strengthen Dr Pepper’s U.S operations and improve its geographical coverage and efficiency. As of Dec 31, 2012, Dr Pepper operates 18 manufacturing facilities and around 115 distribution centers and warehouses across North America. The inclusion of the territory and distribution operations of the bottling company will help Dr Pepper Snapple Group to better align its operations with its customers, reduce transportation cost and have greater control over the timing and management of new product launches.
However, the company’s lack of exposure outside the U.S. is concerning. The company mainly operates its business in the U.S., Canada and Mexico, which are experiencing saturation. It thus lacks exposure in the fast growing emerging markets where demand is growing and health consciousness is comparatively less than the western countries. This is a significant competitive disadvantage for Dr Pepper’s versus peers like The Coca-Cola Company (KO) and PepsiCo, Inc. (PEP), which are fast expanding exposure outside the U.S.
Dr Pepper Snapple Group Inc. currently carries a Zacks Rank #4 (Sell).
Another company in the sector, which is currently doing well is Coca-Cola Hellenic Bottling Company S.A (CCH) with a Zacks Rank #2 (Buy).
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