Why Dr Pepper Snapple needs to look beyond soda
A must-know overview of Dr Pepper Snapple (Part 10 of 14)
Declining soda volumes
Consumers are moving away from carbonated soda drinks (or CSDs) due to the ill-effects caused by them such as diabetes and obesity. The decline in soda is more prevalent in developed markets like the United States where carbonated soft drink volumes declined by 3% in 2013, to 8.9 billion 192-ounce cases. According to the Beverage Digest, 2013 was the ninth straight year in which CSD volumes declined, bringing the volume to the 1995 level.
Soda loses its fizz
In 2013, CSD volumes of all the top three companies in the US market continued to decline. The CSD volumes for The Coca-Cola Company (KO) and Dr Pepper Snapple Group Inc. (DPS) declined by 2.2% and 2.4%, respectively. PepsiCo Inc.’s (PEP) 2013 CSD volumes declined by 4.4%, almost double the rate of decline of Dr Pepper Snapple. The decline in the diet versions of the soda drinks was even more. For instance, Coke brand’s volume declined by 0.5%, and Diet Coke’s volume declined by a significant 6.8%.
These soft drink makers are part of the consumer staples sector in which you can invest through ETFs such as the Consumer Staples Select Sector SPDR Fund (XLP).
Noncarbonated beverages
Consumer preferences are shifting from carbonated drinks to healthier drinks such as ready-to-drink tea, sports drinks, bottled water, and value-added dairy. According to Beverage Marketing Corporation, in the first half of 2014, bottled water volumes increased by 7.5%, energy drink volumes increased by 6.3%, sports drink volumes were up 3.2%, and ready-to-drink tea volumes increased by 2.3%.
To capture the demand for noncarbonated beverages (or NCBs), Dr Pepper Snapple has been developing some new products in this category. Introductions in 2013 included Snapple Regular Half ‘n Half Lemonade Iced Tea and Hawaiian Punch Aloha Morning in three citrus flavors with lower sugar content. In early 2014, the company’s juice brand Mott’s launched three new flavors, Fruit Punch Rush, Wild Grape Surge, and Strawberry Boom, each containing 40% less sugar than fruit juices and no artificial sweeteners.
Dr Pepper Snapple’s presence in the growth categories such as ready-to-drink-tea and bottled water is not as strong as its key rivals’. The company needs to aggressively expand its NCB portfolio in order to capture the demand for healthier drinks as well as offset the impact of declining CSD volumes.
Browse this series on Market Realist:
