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Dr. Pepper

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Keith Arnold

on 1 August 2013

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Transcript of Dr. Pepper

“At Dr Pepper Snapple Group, it is our vision to be the best beverage business in the Americas. Our brands have been synonymous with refreshment, fun and flavor for generations, and our sales are poised to keep growing in the future.”
Photo & Text Courtesy of http://www.drpeppersnapplegroup.com

2009 No. 1 Product of the Year USA Awards

2010 Beverage Forum Company of the Year

2010 CSP Retailer Choice Best New Product Award for Snapple

2011 Ranked No. 404 on the Fortune 500

DOT Supplier of the Year Award

Snapple Green Tea is Awarded 1st Place in the Annual North American Tea Championship™
Photo & Text Courtesy of http://www.drpeppersnapplegroup.com

1885 Waco TX, Charles Alderton Invents Dr. Pepper

1973 The Original Snapple is Born

1982-89 Cadbury Schweppes Acquires Mott’s, Canada Dry, Sunkist, Crush & Sun Drop

1995 Schweppes Purchases Dr. Pepper Seven Up, Inc.

2000 Cadbury Schweppes Acquires Snapple Group

2003 Cadbury Schweppes Americas Beverages is Born

2006 Company Establishes Own Bottling & Distributing Network

2008 Dr. Pepper Snapple Group Became Stand-Alone Public Company Trading on the NYSE
Photo & Text Courtesy of http://www.drpeppersnapplegroup.com

More than 50 Brands in the Market

Has 6 in the top 10 of non-cola drinks

9 of the 12 leading brands are No.1 in their category

200 + Distribution Centers

21 Manufacturing Centers

19,000 + Employees
General Environment
Industry Environment
Internal Capabilities
Stakeholders Agenda
Industry overview
The Dr Pepper/Snapple Group (DPS) competes in the US beverage manufacture and bottling industry.
Over 90 percent of the combined $70 billion in annual revenues are generated by the three largest companies—Coca-Cola, PepsiCo, and DPS—and their subsidiaries.
The major products in the industry are carbonated soft drinks, including colas and other flavors, bottled waters, juices, and a variety of syrups and mixes.
Dr. Pepper Snapple owns a wide range of beverage brands, including Dr. Pepper, 7-Up, Canada Dry, Schweppes and RC Cola. Non-carbonated brands include Snapple, Clamato, Yoo-Hoo, Hawaiian Punch and Mr. & Mrs. T.
Three categories: beverage concentrates, pre-packaged beverages and Latin America beverages.
One of their greatest competitive advantage: Several of the company's brands, including Dr. Pepper and Canada Dry, are sold and distributed by Coca-Cola under a long-term licensing agreement.
Variety of products and target to broad demographic.
Multi product branding.
Level of Rivalry
Degree of Rivalry is VERY HIGH.

Only three major players:
The CocaCola Company
PepsiCo, Inc.
The Dr Pepper Snapple Group, Inc.
What do they offer?

Superior Brands with pricing power that have developed loyal customers.

Brand recognition
How do they respond to competitive pressures?

Introduce new products

Reduce prices or increasing promotional activities.
Threats: Small Companies

Bring new products to market and better able to quickly exploit and serve niche markets.
Fighting back...

Reduce prices or increase spending on:
product innovation

*Any of these could negatively affect business and financial performance.
Power of Suppliers
Diversity of Suppliers
Firms owned and operated by:
Physically challenged entrepeneurs

DPS seeks the best valued, highest quality products and services by encouraging competition among all suppliers.
Power Level
• Equipment

• Facilities

• Marketing

• Office Supplies

• Operational Services

• Printing

• Professional Services

• Staffing

• Technologies

• Telecommunications
Low - Medium Power Level
DPS decides who works with them.
Major inputs available from a LIMITED number of suppliers:
Apple juice concentrate
Natural gas
DPS has limited power -
Low control of prices they pay for
Any significant interruption to supply or cost increase could substantially harm DPS´s business and financial performance.
Power of Buyers
(cc) photo by medhead on Flickr
Soft Drink Industry
- Federal
- State
- Local
- Many types of governments
- Genetically Modified Foods
- Trade Barriers
- Currency
- Recycling
- Consumption
Largest manufacturer, distributor, and marketer of nonalcoholic beverage concentrates and syrups in the world.
Markets four of the world’s top five carbonated soft drinks—Coca-Cola, named the world’s most valuable brand, Diet Coke, Fanta and Sprite.
Owns and licenses nearly 500 other brands, including diet and light beverages, enhanced
waters, juice drinks, teas, coffees, and sports and energy drinks.
Primarily a brand owner and manufacturer, selling its concentrates and syrups to bottling and canning companies,
fountain wholesalers and retailers, and distributers.
“To refresh the world, to inspire moments of optimism and happiness, and to create value and make a difference.”
Societies attitudes and cultural values
Soda makes our kids fat!
I think fake sugar is worse!
Following its mission statement, Coke...

Maintains an international focus,
Markets and distributes its products in over 200 countries throughout the world. To facilitate its international focus, Coke spends a significant amount of capital on technological development and marketing.

The combination between international sales, technology development and marketing has made Coke one of the most widely recognized and profitable companies in the world.
Target Market
- Labeling
- Antitrust Law
White 79.76%
African American 12.85%
Asian 4.43%
Amerindian & Alaskan native .97%
Native Hawaiian or other Pacific Islander .18%
Two or more races 1.61%
British Isles origin 28%
French Origin 23%
Other European 15%
Amerindian 2%
Other 6%
Mixed background 26%
Mestizo (Amerindian Spanish) 60%
Dominantly Amerindian 30%
White 9%
Other 1%
Health Consciousness/Lifestyle
Reduce caloric intake
Richer in vitamins
Changes to Snapple brand
Environmental sustainability
Children & teenagers heavily advertised in recent years
Hispanic Americans segment targeted for considerable growth
Sun Drop => Tweens
Motts for Tots => Kids/Parents
Dr. Pepper 10 => Men
Dr. Pepper => Millenials
Changes in advertising
Celebrity endorsements
Viral Marketing
Entire Sunkist budget allocated & 20% of Dr. Pepper budget to internet
Supplemented MKTG adjustments by increasing distribution channels in coolers, vending machines and fast food fountains
Added placements to 31,000 fast food restaurants
Added to 14,000 McDonald’s franchises to increase availability from 60-100%
Outline strategy to implement 175,000 coolers and vending machines across country during next five years
Strong cash flow
Budget Deficits
Challenging Economic Conditions
Struggling economy
Discretionary income restricted
Sales in industry tanked
High commodity inflation
Economic pressures
Many companies drastically cut marketing budgets
DPS performed analysis of early 1980’s with partner Nielsen Media; In contrast to mainstream reaction DPS strongly increased their marketing budget to focus on brand development, availability and advertising
Grew 5% Net Sales
$773 Million -> SH
US: $48,100 per capita (2011); $47,800 (2010); $46,800 (2009)

Mexico: $15,100 (2011); $14,400 (2010); $13,600 (2009)

Canada: $40,300 (2011); $39,100 (2010); $37,900 (2009)
US: -8.9% of GDP (2011)

Canada: -3.8% of GDP (2011)

Mexico: -2.4% of GDP (2011)
US: 3% (2011); 1.6% (2010)

* Mexico: 3.5% (2011); 4.2% (2010)

Canada: 2.8% (2011); 1.8% (2010)
Economic Impact
Net Sales- $5.6 billion
Good Purchased- $2.2 billion
Taxes Paid- $188 million
U.S. Federal- $146 million
State/local- $33 million
International- $9 million
Despite the struggles of economy in recent years, the soft drink industry has remained extremely successful. Overall worldwide consumption increased by 4.1% in 2011.
Community Investments $7 million
Phil- $3.8 million
CRM/Sponsor- $3.2 million
Donations- $1.6 million
Wages, benefits & payroll taxes- $924 million
Our mission is to be the world's premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity.
Global leader in beverage, snack and food manufacture and distribution.
Pepsi is divided into three major business units
PepsiCo Americas Foods
PepsiCo Americas Beverages
PepsiCo International

These business units manufacture, market and sell a variety of convenient, salty, sweet and grain-based snacks, carbonated soft drinks and noncarbonated beverages, and other foods in approximately 200 countries throughout the world.
Pepsi, Pepsi One, Diet Pepsi
Mountain Dew
Sierra Mist
Frito Lay
SoBe and SoBe Lifewater
Pepsi also holds licenses to use trademarks for many valuable products, including: Lipton, Starbucks, Dole and Ocean Spray
Beverage brands
Dr. Pepper
Canada Dry
RC Cola
Non-carbonated brands Snapple
Hawaiian Punch
Mr. & Mrs. T.
Depending on their buyer, buyer power can range from low to medium.
The Coca-Cola Company and PepsiCo, Inc. represent roughly 50% of Dr Pepper Snapple’s beverage concentrates segment and are considerably larger in size than DPS.
These relationships are contractual so few changes can be made.
Other buyers of Dr Pepper Snapple’s products have low power because they represent a small fraction of Dr Pepper Snapple’s sales and Dr Pepper Snapple’s strong brand names grant them pricing power in most markets.
These large retailers are in a better position to resist DPS price increases and demand lower prices.
They also have leverage to require DPS to provide larger, more tailored promotional and product delivery programs.
DPS Group´s bottlers and distributors must successfully provide appropriate marketing, product, packaging, pricing and service to these retailers. If not product availability, sales and margins could suffer.
Certain retailers make up a significant percentage of DPS retail volume.

The loss of sales of any of their products in a major retailer could affect business and financial performance.
We need to do something about this!
Headquarters in Plano, TX
Employs 20,000, 24 production plants & more than 200 distribution centers
Primarily serve bottlers & distributors and retailers
Internal distribution carried out by railroad & trucks, operating a "Hub & Spoke" supply chain system
Allows for orders to be filled closer to customers, increases consumer satisfaction & controls transportation costs.
"Ultimate goal of providing better service to customer, because it will translate to sales."

(cc) image by nuonsolarteam on Flickr
(cc) image by nuonsolarteam on Flickr
Core Competencies
High Expertise in Flavors
DPS Energy Efforts
Using third-party resources to obtain comprehensive data on utilty/electricity usage
Improving energy efficiency and reducing CO2 emissions
Upgrading to more enery-efficient fluorescent lighting (Completed 17 lighting projects in 2010)
Driving energy efficiency in the field, replacing outdated vending machines with Energy Star-rated equipment (20,000 since 09)
Production facility in Victorville, CA was awarded Leadership in Energy and Environmental Design certification (Silver) in 2011
Research and Development
Product Development
Analytical Chemistry
Process Engineering
Sensory Science
Knowledge Management
Regulatory Compliance
Decentralized Production and Distribution
18 Manufacturing in U.S.
3 Manufacturing Facilities in Mexico
174 Distribution Centers in U.S.
23 Distribution Centers in Mexico
Hundreds of Third Party Bottlers and Distributors
Source: DPS 2011 CSR Report
The beverage industry has and will continue to be a very concentrated yet volatile arena. Dr. Pepper Snapple Group (DPS) has a unique advantage in that it has over 50 brands and hundreds of flavors in the carbonated, juice, tea, mixer, water etc. categories. This means that as a whole, the company is very diverse in its offering and can act accordingly based on the markets needs. DPS still has to be mindful of the ever changing consumer preferences, and emerging trends so it can stay competitive. Low switching costs make this even more critical. Threat of substitution typically varies between medium and high.
Threat of Substitution
The beverage industry has a decent history, and because of this many strong brand identities/relationships exist within consumers. This along with such concentrated major players makes for tough and relevantly high barriers to entry.
The major players being Coca-Cola, Pepsi Co, DPS, and Monster Beverage, etc. have significant advantages in regards to economies of scale and scope. This making it difficult for new entrants to ever really compete on a operational efficiency scale.
The major players which account for 70% of the industry also have heavy marketing/advertising campaigns with also making it difficult to enter/compete in the industry.
Independent brands have been known to find success in niche and local markets where there is demand.
With such a saturated market many companies and brands are constantly in competition over market share. This makes it tough and expensive to obtain shelf space. Some companies have no choice but to enter the less crowded Juice Market just to gain shelf space in retail.
Considering the primary business of DPS is beverages the barriers to exit are decently high. Much has been invested as DPS, and its brands have been around for several years and have acquired strong recognition. They also have a commitment to the consumer.
Industry Barriers to Entry/Exit
High Brand Awareness
Dr. Pepper
Canada Dry
RC Cola
Hawaiian Punch
DPS Technological Efforts
Water Conservation
Currently evaluating water usage reporting and tracking practices
Upgrading product blending systems to reduce liquid losses during production line changes, startups and shutdowns
Investing in multipass reverse-osmosis water filtration systems
Using recovered reject water for cooling towers, irrigation, and steam generation
DPS Mexico-based operation setting standard for accountabilty on water stewardship
Source: DPS 2010 CSR Report, DPS 2011 CSR Report
Minimizing Environmental Footprint
DPS currently recycles 75% of its manufacturing solid waste
More than 70% of new small fleet vehicles meet EPA "green" standards
Joined EPA's SmartWay Partnership reducing amount of CO2 and NO2 per year
2011 accomplished initiatives:
Reduced 64-oz cold-fill juice and tea bottle weights by 5%, saving 900,000 lbs of resin annually
Re-designed 20-oz, 1-lter and 2-liter soft drink containers which has resulted in 5 million pounds of PET savings per year
Converted the finish on all 20-oz Snapple bottles saving 147,500 pounds of high-density polyethylene annually
Source: DPS 2011 CSR Report
R&D team is pursuing innovative packaging solutions to reduce amount of raw materials used:
-DPS now has lightest 2-liter bottle in the industry and became the first company to fully implement the "1881 standard"
Commercially implementing 100% PCR containers in select markets
Conducting market test evaluation of reusable, multi-serve juice and secondary display packaging, further reducing the need for disposable corrugate boxes
Expanding the use of Green Ink printing technology beyond Deja Blue to also include labels for brands such as 7UP, A&W and Diet Rite
**50% of innovation projects are now focused on reducing calories, offering smaller sizes and improving nutrition
Depend on a small number of large retailers for a significant portion of sales
Depend on third-party bottling and distribution companies for a portion of business
Party to various litigation claims and legal proceedings which include employment, tort, real estate, commercial and other litigation
DPS expects to incur substantial costs to upgrade various facilities and equipment which would negatively affect financial performance
Dependent on beverage industry commodities such as fuel, aluminum, corn. Commodity price volatility has exerted pressure on industry margins and operating results
Strong portfolio of leading, consumer-preferred brands
Integrated business model that aligns economic interests of brand ownership and manufacturing and distribution businesses
Strong customer relationships
Attractive positioning- DPS holds #1 position in the U.S. flavored CSD beverage markets by volume (Source: Beverage Digest)
Broad geographic manufacturing and distribution coverage
Strong operating margins and stable cash flows
Experienced executive management team (Over 200 years of collective experience)
Source: DPSG 2011 Annual Report
Source: DPS 2011 CSR Report
Source: www.ibisworld.com
Greater consumer concerns about the unhealthy content of the product stimulated a decline in CSD consumption
A steady decline in the per capita consumption of CSD's led the industry to innovate and create market alternatives to attract increasingly health-conscious consumers
CSD's are expected to decline significantly in terms of volume over the next few years to 2017
According to IBISWorld.com
World's largest provider of industry-based research

Keith Arnold
Jason Atkinson
Mónica Carlos
Katherine Clark
Sean Dieterich
Quentin Miller
Shelby Perkins

Doctor Pepper Snapple Group has long been a company you can trust for refreshing, enjoyable, and affordable beverage selection. This has made us one of the best within our industry.  As we continue in the 21st century we pledge to continue our pursuit of innovation and sustainability ensuring we bring you the very best stuff on earth for centuries to come.
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