Dr. Pepper's Refocused Strategy

 |  Includes: DPS, KO, PEP
by: Brian Polino

After licensing their predominant product, Dr Pepper, to PepsiCo (NYSE:PEP) and Coca-Cola (NYSE:KO), Dr Pepper Snapple Group (NYSE:DPS) is refocusing initiatives around their remaining product portfolio. Other brands, such as 7UP, Sunkist, Canada Dry, Snapple, Motts and A&W root beer, will receive more focus to help rejuvenate Dr Pepper Snapple’s overall product portfolio. With a fleet of more than 5,000 trucks and 12,000 total employees refocused on harnessing new expansion, considerable growth could be the result if this strategy is executed properly. And, according to Dr Pepper Snapple’s 2009 Form 10-K, management states,

Our manufacturing and distribution system enables us to improve focus on our brands,especially 7UP, Sunkist, A&W, and Snapple, which do not have a large presence in the Coca-Cola affiliated or PepsiCo-affiliated bottler systems.

Dr Pepper Snapple also has 21% of the United States carbonated soft drink market as measured by retail sales. If they can successfully refocus their core operations, their product portfolio would reignite and perhaps drive more international sales. Dr Pepper Snapple’s Latin America Beverage subsidiary only accounted for a small fraction of income, and if expansion down south seems almost certain, is global expansion so far off? By partnering their Dr Pepper soft drink with global leaders PepsiCo and Coca-Cola, Dr Pepper Snapple will begin the journey to more international recognition.

Nevertheless, the company is not without hurdles that must be overcome. They face stiff competition from PepsiCo and Coca-Cola, and also suffer from a less conservative capital structure than the two. However, Dr Pepper Snapple seems to have able management keen on reducing debt and expanding profitable businesses. Dr Pepper Snapple is not the best firm in the industry, but with excellent leadership, successful returns to shareholders may result. After all in their 2009 annual report, Chairman of the Board Wayne Sanders and President and CEO Larry Young, stated,

Dr Pepper Snapple was the only major beverage company to increase its share of the liquid refreshment beverages category in 2009.

That being said, CEO Larry Young is determined to continue to refresh their core United States operations for the next five to seven years before driving international growth. And as the Doctor ordered, Dr Pepper will continue to focus on its portfolio of flavors, not colas, which help differentiate the products.

Disclosure: The author is long KO at the time of writing.