This is what you need to do:
1) Read the Dr Pepper case study
2) Address this task on one PowerPoint slide:
Use a similar approach as Dr Pepper to understand the customers of the company we work with better.
Dr Pepper Snapple
In early September 2007, Andrew Barker emerged from a lengthy discussion
on the energy beverage market in the United States. As a brand manager for
Snapple beverages at the Dr Pepper Snapple Group, Inc., he was charged with
assessing whether or not a profitable market opportunity existed for a new en
ergy beverage brand to be produced, marketed, and distributed by the company
in 2008. Dr Pepper Snapple Group, Inc. was the only major domestic nonal
coholic beverage company in the United States without a significant branded
energy drink of its own.
Energy beverages are broadly defined as drinks that provide a consumer
with a boost of energy. The central ingredient in most energy beverages is caf
feine derived from the guarana bean. Other common ingredients include tau
rine, ginseng, carnitine, and B vitamins. Energy drinks are considered functional
beverages. Other functional beverages include sports drinks, ready-to-drink tea,
enhanced fruit drinks, soy beverages, and enhanced water.
The decision to explore a new energy beverage was made by senior com
pany management as part of a cOt”porate business strategy to focus on oppor
tunities in high-growth and high-margin beverage businesses. As part of this
strategy, Dr Pepper Snapple Group, Inc. launched the Accelerade RTD brand, a
ready-to-drink sports drink, in late May 2007. Barker believed that the decision
to introduce the Accelerade RTD brand into a new beverage market for the com
pany (sports drinks) was similar to the situation he faced with recommending
whether or not Dr Pepper Snapple Group, Inc. should introduce a new branded
product into the energy beverage market.
The cooperation of Dr Pepper Snapple Group, Inc. in the preparation of this case is grate-
fully acknowledged. This case was prepared by Professor Roger A. Kerin, of the Cox School of
Business, Southern Methodist University, as a basis for class discussion and is not designed to
illustrate effective or ineffective handling of an administrative situation. Certain case information
is disguised and not useful for research purposes. All financial, market, and other information is
through 2007, unless otherwise noted. Brand names of D r Pepper Snapple Group, Inc. are regis
tered trademarks and used with permission. Copyright © 2009 by Roger A. Kerin. No part of this
case may be reproduced without written permission of the copyright holder.
92 CHAPTER 4 OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING
DR PEPPER SNAPPLE GROUP, INC.
Dr Pepper Snapple Group, Inc. is a major integrated brand owner, bottler, and
distributor of nonalcoholic beverages in the United States, Mexico, and Canada.
In 2007, the company posted net sales of $5.748 billion. Eighty-nine percent of
company net sales were generated in the United States, 4 percent in Canada, and
7 percent in Mexico and the Caribbean.
Scope of Company Operations
In the United States and Canada, Dr Pepper Snapple Group, Inc. participated
primarily in the flavored carbonated soft drink (CSD) market segment. The com
pany’s key brands are Dr Pepper, 7UP, Sunkist, A&W, and Canada Dry. The com
pany also sells regional and smaller niche brands. In the CSD market segment,
the company is primarily a manufacturer of beverage concentrates and fountain
syrups. Beverage concentrates are highly concentrated proprietary flavors used
to make syrup or finished beverages. The company manufactures beverage con
centrates that are used by its own bottling operations as well as sold to third
party bottling companies. Dr Pepper Snapple Group, Inc. had an 18.8 percent
share of the U.S. CSD market segment in 2007 (measured by retail sales), which
increased from 18.5 percent in 2006 according to ACNielsen. The company also
manufactures fountain syrup that is sold to the foodservice industry directly,
through bottlers or through third parties.
In the non-CSD market segment in the United States, Dr Pepper Snapple
Group, Inc. participated primarily in the ready-to-drink tea, juice, juice drinks,
and mixer categories. The company’s key non-CSD brands are Snapple, Mott’s,
Hawaiian Punch, and Clamato, in addition to regional and smaller niche brands.
The company manufactures most of the non-CSDs as ready-to-drink beverages
and distributes them through its own distribution network and through third
parties or direct to customers’ warehouses. In addition to non-CSD beverages,
the company manufactures Mott’s apple sauce as a finished product. Exhibit 1
displays representative company-owned brands in the United States.
Source: Courtesy of Dr Pepper Snapple Group, Inc.
DR PEPPER SNAPPLE GROUP, INC. 93
In Mexico and the Caribbean, Dr Pepper Snapple Group, Inc. participated pri
marily in the carbonated mineral water, flavored CSD, bottled water, and vegetable
juice categories. Its key brands in Mexico include Pefiafiel, Squirt, Clamato, and
Aguafiel. In Mexico, the company manufactures and sells its own brands through
both its own bottling operations and third-party bottlers. In the Caribbean, the com
pany distributes its products solely through third-party distributors and bottlers.
Dr Pepper Snapple Group, Inc. senior executives have identified seven key
strengths that the company brings to the marketplace. Each is summarized below.
Strong Portfolio of Leading, Consumer-Preferred Brands Dr Pepper
Snapple Group, Inc. owns a diverse portfolio of well-known CSD and non-CSD
brands. Many brands enjoy high levels of consumer awareness, preference, and
loyalty rooted in their rich heritage, which drive. their market positions. This
diverse portfolio provides bottlers, distributors, and retailers with a wide variety
of products and provides a foundation for growth and profitability. The com
pany is the number one flavored CSD company in the United States according to
ACNielsen. In addition, it is the only major beverage concentrate manufacturer
with year-over-year market share growth in the CSD market segment in each
of the last four years ended 2007, according to ACNielsen. Its largest brand,
Dr Pepper, is the number two flavored CSD in the United States, according to
ACNielsen, and the Snapple brand is a leading ready-to-drink tea. Overall, in
2007, more than 75 percent of Dr Pepper Snapple Group, Inc. volume was gen
erated by brands that hold either the first or second position in their category.
The strength of these key brands has served as a platform for launching innova
tions and brand extensions such as Dr Pepper Soda Fountain Classics, Motts for
Tots, and Snapple Antioxidant Waters.
Integrated Business Model Dr Pepper Snapple Group, Inc. management be
lieves its brand ownership, bottling, and distribution are more integrated than the
U.S. operations of its principal competitors and that this differentiation provides
the company with a competitive advantage. The company’s integrated business
model also provides opportunities for net sales and profit growth through the
alignment of the economic interests of its brand ownership and its bottling and
Strong Customer Relationships Dr Pepper Snapple Group, Inc. brands have
long-standing relationships with many of its top customers. Company products are
sold to a wide range of customers, from bottlers and distributors to national retail
ers, large foodservice, and convenience store customers. The company has strong
relationships with some of the largest bottlers and distributors, including those af
filiated with Coca-Cola and PepsiCo; some of the largest and most important U.S.
retailers, including Walmart, Safeway, Kroger, and Target; some of the largest food
service customers, including McDonald’s, Yum! Brands (KFC, Pizza Hut, Taco Bell,
Long John Silver’s, and A&W All-American Food), and Burger King; and conve
nience store customers, including 7-Eleven.
Attractive Positioning Within a Large, Growing, and Profitable Market
Dr Pepper Snapple Group, Inc. holds the number three position in each of the
United States, Canada, and Mexico beverage markets. Each of these markets is
well positioned to benefit from emerging consumer trends such as the need for
convenience and the demand for products with health and wellness benefits. In
94 CHAPTER 4 OPPORTUNI1Y ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING
addition, the company participates in many of the growing categories in the liquid
refreshment beverage market, such as ready-to-drink teas. The company does not
participate significantly in colas, which have declined in CSD volume share from
70.0 percent in 1991 to 57.4 percent in 2006 in the United States, according to Bever
age Digest, a major trade publication. Nor does the company participate significantly
in the bottled water market segment, which is a highly competitive and generally
low-margin market segment. Following its acquisition by Coca-Cola, Energy Brands,
Inc. terminated its distribution agreement with the company on August 30, 2007, for
Glaceau brand products, including vitamin water, fruit water, and smart water.
Broad Geographic Manufacturing and Distribution Coverage Dr Pepper
Snapple Group, Inc. has 21 manufacturing facilities and approximately
200 distribution centers in the United States, as well as four manufacturing pro
cesses. Company warehouses are located at or near bottling plants and geograph
ically dispersed across sales regions to ensure company products are available to
meet consumer demand. The company manages transportation of its products
using its own fleet of delivery trucks, as well as third-party logistics providers
on a selected basis. Following recent bottling acquisitions and manufacturing in
vestment, the company has broad geographic coverage with strategically located
manufacturing and distribution capabilities, enabling it to better align its opera
tions with customers, reduce transportation costs, and have greater control over
the timing and coordination of new product launches.
Strong Operating Margins and Significant, Stable Cash Flows The breadth
and strength of the Dr Pepper Snapple Group, Inc. product portfolio have en
abled the company to generate strong operating margins which, combined with
relatively modest capital expenditures, have delivered significant and stable cash
flows. These cash flows create stockholder value by enabling the company to
consider a variety of alternatives, such as investing in its business, reducing debt,
and returning capital to its stockholders.
Experienced Executive Management Team The Dr Pepper Snapple Group,
Inc. executive management team has an average of more than 20 years of experi
ence in the food and beverage industry. The team has broad experience in brand
ownership, bottling, and distribution, and enjoys strong relationships both within
the industry and with major customers. In addition, the management team has
diverse skills that support operating strategies, including driving organic growth
through targeted and efficient marketing, reducing operating costs, enhancing
distribution efficiencies, aligning manufacturing and bottling and distribution in
terests, and executing strategic acquisitions.
Company Business Strategy
There are six key elements of the Dr Pepper Snapple Group, Inc. business strategy
as described by executive management. Each capitalizes on company strengths.
Build and Enhance Leading Brands Dr Pepper Snapple Group, Inc. has a
well-defined strategy to allocate marketing and sales resources. The company
uses an ongoing process of market and consumer analysis to identify key brands
that have the greatest potential for profitable sales growth. For example, in 2006
and 2007, the Snapple product portfolio was enhanced by launching brand exten
sions with functional benefits, such as super premium teas and juice drinks and
Snapple Antioxidant Waters. Also, in 2006, 7UP was relaunched with 100 percent
natural flavors and no artificial preservatives, thereby differentiating the 7UP
DR PEPPER SNAPPLE GROUP, INC. 95
brand from other major lemon-lime CSDs. The company intends to invest most
heavily in its key brands to drive profitable and sustainable growth by strength
ening consumer awareness, developing innovative products and brand exten
sions to take advantage of evolving consumer trends, improving distribution, and
increasing promotional effectiveness.
Focus on Opportunities in High-Growth and High-Margin Categories
Dr Pepper Snapple Group, Inc. is focused on driving growth in its business in
profitable and emerging categories. These categories include ready-to-drink teas
and functional beverages. For example, the company recently launched Snapple
super premium teas and juices, Snapple enhanced waters, and Accelerade RTD, a
protein-enhanced sports drink. The company also intends to capitalize on oppor
tunities in these categories through brand extensions, new product launches, and
selective acquisitions of brands and distribution rights. Senior management be
lieves the company is well positioned to enter into new distribution agreements
for emerging, high-growth third-party brands in new categories that can use its
bottling and distribution network. The company can provide these brands with
distribution capability and resources to grow. These brands, in turn, can provide
the company exposure to growing segments of. the market with relatively low
risk and capital investment.
Increase Presence in High-Margin Channels and Packages Dr Pepper
Snapple Group, Inc. is focused on improving its product presence in high-margin
channels, such as convenience stores, vending machines, and small independent
retail outlets, through increased selling activity and significant investments in
coolers and other cold drink equipment. The company intends to significantly
increase the number of branded coolers and other cold drink equipment over
the next few years, which is expected to provide an attractive return on invest
ment. The company also intends to increase demand for high-margin products
like single-serve packages for many key brands through increased promotional
activity and innovation.
Leverage the Company’s Integrated Business Model The company’s inte
grated brand ownership, bottling, and distribution business model provides op
portunities for net sales and profit growth through the alignment of the economic
interests of its brand ownership and its bottling and distribution businesses. The
company intends to leverage its integrated business model to reduce costs by cre
ating greater geographic manufacturing and distribution coverage and to be more
flexible and responsive to the changing needs of large retail customers by coordi
nating sales, service, distribution, promotions, and product launches.
Strengthen the Company’s Route-to-Market Through Acquisitions The
recent acquisition and creation of the Dr Pepper Snapple Bottling Group is part of
a longer-term initiative to strengthen the route-to-market for the company’s prod
ucts. Additional acquisitions of regional bottling companies will broaden geo
graphic coverage in regions where the company is currently underrepresented,
enhance coordination with large retail customers, more quickly address changing
customer demands, accelerate the introduction of new products, improve collab
oration around new product innovations, and expand coverage of high-margin
Improve Operating Efficiency The company’s recently announced restruc
turing will reduce selling, general, and administrative expenses and improve
operating efficiency. In addition, the integration of recent acquisitions into the
96 CHAPTER 4 OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING
company’s bottling group has created the opportunity to improve manufacturing,
warehousing, and distribution operations. For example, the company has created
multiproduct manufacturing facilities that can provide a sales region with a wide
variety of products at reduced transportation and co-packing costs.
THE ENERGY BEVERAGE MA RKET IN THE UNITED STATES
Excluding coffee, energy beverages were the fourth largest nonalcoholic bever
age category in the United States in 2006 after carbonated soft drinks, sports
drinks, and bottled water. However, it was the fastest growing beverage category.
Energy Beverage Sales Growth
As a practical matter, the energy beverage market is defined by major brands,
including Red Bull, Monster Energy, Rockstar, and literally hundreds of simi
larly positioned brands. These brands produced estimated retail dollar sales of
$6.2 billion in 2006 according to the market research firm Packaged Facts. Off
premise sales through convenience stores, supermarkets, and mass merchandis
ers accounted for 71 percent of total retail sales in 2006. On-premise retailers,
such as restaurants and nightclubs, accounted for 29 percent of total retail sales.
From 2001 to 2006, total energy beverage retail sales grew at an average annual
rate of 42.5 percent. In 2006, an estimated 153 million energy beverage cases
were sold across all retail channels (one case is equivalent to 36 8-ounce contain
ers, or 288 ounces).
Industry analysts were projecting an average annual growth rate of 10.5 per
cent from 2007 to 2011. The slower growth rate was attributed to market maturity,
increased price and packaging competition, and the entrance of hybrid energy
beverages, such as energy water, energy fruit drinks, ready-to-drink energy teas,
and energy colas.
Energy beverage sales in 2006 were dwarfed by CSD sales of $72 billion
according to Beverage Digest. However, CSD sales posted an average year-over
year growth rate of 2.5 percent between 2001 and 2006 and were projected to
decline 1 to 2 percent annually through 2011.
The Energy Beverage Consumer
The heavy user of energy beverages consists of males between the ages of 12 and 34
(see Exhibit 2). Average U.S. per capita consumption of energy beverage drinkers
increased by 14 percent since 2004, reaching 4.32 8-ounce servings per month in
2006. Energy beverages are most often consumed in the afternoon followed by
morning consumption. Most consumers drink energy beverages at home, in the
car, and at work/school. The major reasons why consumers drink energy bever
ages include an energy boost, mental alertness, refreshment, and taste. Energy
beverage consumers limit their choice to only 1.4 different brands, on average,
which suggests brand loyalty in this market.
Energy Beverage Off-Premise Retail Channels
Convenience stores and supermarkets are the dominant off-premise retail chan
nels for energy beverages. In 2006, convenience stores accounted for 74 percent
of off-premise retail dollar sales, down from 81 percent in 2004. Supermarkets
recorded 14 percent of off-premise retail sales in 2006, up from 11 percent