Dr Pepper

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Dr
Pepper
Snapple
Group
2011:

Fighting
to
Prosper
In
a
Highly
Competitive
Market



 
 
 
 Written
by
Joseph
S.
Harrison
under
the
direction
of
Jeffrey
S.
Harrison
at
the
Robins
School
of
Business,
 University
of
Richmond.
Copyright
©
Jeffrey
S.
Harrison.
This
case
was
written
for
the
purpose
of
 classroom
discussion.
It
is
not
to
be
duplicated
or
cited
in
any
form
without
the
copyright
holder’s
 express
permission.
For
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or
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contact
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Harrison
 (harrison@richmond.edu).
In
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Larry Young, President and CEO of Dr Pepper Snapple Group, Inc. (DPS) seemed to be on a roll. Named 2010 Beverage Executive of the Year by Beverage Industry Magazine, he led the company through three very difficult economic years since it separated from the London-based food and beverage giant Cadbury Schweppes. Reflecting on that time, he chuckled, “There couldn’t have been a worse year to go public.”1 Triggered by the collapse of mortgage-backed securities, the recession froze the credit markets and led to unprecedented commodities prices. In spite of adverse economic conditions and fierce competition, the company managed to obtain modest growth in sales in 2010. Perhaps most satisfying of all was the recent turnaround of the Snapple Brand, which had been struggling for many years.2 Sales volume for the brand grew 10 percent in 2010, fueled by new products, packages and distribution. In addition, Dr Pepper, Canada Dry, Crush, Mott’s and Hawaiian Punch all experienced increases in demand. A healthy cash flow allowed the company to pay down its debt, increase dividends and repurchase shares. A question remained as to whether the company was simply taking advantage of some fairly obvious opportunities that it could not pursue when it was under Cadbury Schweppes ownership, or whether this number three firm could actually begin to prosper in an industry dominated by two of the strongest brands in the world. After all, although DPS sales were up almost 2 percent in 2010, profits were lower than in 2009. In comparison, Coca Cola Company experienced growth in revenues of 13.3 percent in 2010, with operating income increasing by 2.7 percent. During the same time period, PepsiCo had revenue growth of 33.8 percent and growth in operating profit of 3.6 percent. THE DR PEPPER SNAPPLE STORY The original Dr Pepper soft drink was invented in 1885 by a young pharmacist named Charles Alderton. At the time, Alderton was working at Morrison’s Old Corner Drug Store in Waco Texas, which served carbonated soft drinks from a soda fountain. Using that resource, Alderton began to experiment with his own recipes and soon discovered that one particular drink, referred to as “the Waco,” was gaining popularity among his customers. As demand grew, Alderton and Morrison brought in a third partner to help with the manufacture and bottling of the soft drink. The partner was Robert S Lazenby, owner of the Circle “A” Ginger Ale Company. Alderton left the business shortly thereafter, but Morrison and Lazenby continued on to form what would come to be known as the Dr Pepper Company, named after a friend of Morrison. The company was introduced to the general public in 1904 at the World’s Fair Exposition in St. Louis.3 From its humble beginnings in Morrison’s Old Corner Drug Store, the company Alderton and Morrison started has become one of the largest beverage manufacturers in North America. The current product portfolio of DPS is closely tied to the history of mergers and acquisitions of its one time parent company, Cadbury Schweppes plc (Cadbury Schweppes). Cadbury Schweppes emerged in 1969 from the merger of Cadbury plc, a British confectionary and soft drink company, and Schweppes, an international beverage brand. In the three decades that followed, Cadbury Schweppes gained the third largest...
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