Even as Dr Pepper Snapple focuses more attention on healthier beverage alternatives that are becoming increasingly popular with consumers, the nation’s third-largest soft drink maker hasn’t given up on growing its popular soda brands.
“We have a both hands strategy. We believe we can grow sodas and we think there is a lot of room for fast growing brands like Bai [that we just acquired]," James Trebilcock, executive vice president and chief commercial officer for Dr Pepper Snapple, told Food Dive at the Beverage Forum. “We’ve been able to keep our soda business quite healthy even with all the pressures and everything like that, but we think there is an opportunity to participate in these faster growing categories.”
The company’s soda business has benefited from the fact that its drinks are not in the colas that have been hit especially hard at Coca-Cola and PepsiCo, he said, but in differentiated brands like Dr Pepper, Sunkist, A&W, Squirt and 7-Up. Carbonated soft drink sales for Dr Pepper Snapple rose 1% in its latest quarter, the company reported last week.
“We’ve been able to keep our soda business quite healthy even with all the pressures and everything like that, but we think there is an opportunity to participate in these faster growing categories."
James Trebilcock
Executive vice president and chief commercial officer for Dr Pepper Snapple
Meanwhile, the beverage giant has pushed into waters, teas and sports drinks as consumers increasingly ditch sugary beverages. Carbonated soft drink sales fell nearly 1% industry-wide last year, its 12th consecutive annual decline — and for the first time ever, soda was supplanted by water as the largest beverage category in the U.S.
Despite the continued reliance on soda, Dr Pepper Snapple has worked to lessen its dependence on a beverage that has long been its identity. As more consumers purchase juices and flavored waters, the company has boosted its flavored seltzer water line to tap into increased sales of sparkling water. Perhaps most notably, the beverage company paid $1.7 billion last November to acquire Bai Brands, a maker of fruit-flavored, antioxidant-infused beverages.
More deals in the works?
Before its purchase, Bai was one of a handful of "allied brands" the company works with — others currently include AriZona, Fiji Water, BodyArmor and Vita Coco — that give Dr Pepper Snapple access to faster-growing beverage categories coveted by health-conscious shoppers.
Trebilcock did not rule out acquiring another one of these brands in the future.
“Those guys are all fast-growing companies and when it’s the right thing to do, as in the case of Bai, we’ll certainly evaluate [whether to buy them]," Trebilcock said. For now, “we’re letting these entrepreneurs and all the capital behind them develop and build those brands, and we’re leveraging the strength of our distribution network to get them available.”
But Dr Pepper Snapple surprised Wall Street recently when it lowered sales growth projections at Bai. The revised numbers come as the company looks for the brand to rely less on bulk pack sales at club stores where the product is heavily discounted and more on grocery and convenience stores that are conducive to building brand loyalty. The beverage maker also is looking to be more innovative, create new products and expand Bai abroad — decisions that are not uncommon when a big food and beverage company integrates a smaller, newly purchased brand into their portfolio.
"My best guess is it is really execution — that we really do have a company that is more seasoned in making brands into the next 7-Up or Dr Pepper and so they are taking a different approach."
Mark Swartzberg
Analyst at Stifel, Nicolaus & Co.
At the Beverage Forum, Mark Swartzberg, an analyst at Stifel, Nicolaus & Co., speculated that Dr Pepper Snapple is struggling to integrate the new business into its existing operations.
"My best guess is it is really execution — that we really do have a company that is more seasoned in making brands into the next 7-Up or Dr Pepper and so they are taking a different approach," Swartzberg told the audience at the event.
But despite the near-term challenges, he expects Bai Brands "will be [a] successful" acquisition for Dr Pepper Snapple.
Big brands struggle to integrate acquisitions
Struggles to integrate acquisitions are hardly unique across the food and beverage industry.
Hershey recently conceded it is still trying to figure out how to best expand the recently acquired Krave and barkTHINS brands. Campbell Soup had high hopes for the expansion of its fresh foods division after purchasing Bolthouse and Garden Fresh Gourmet brands, but crop shortages and a failure to differentiate tastes depending on the region of the country have created challenges.
Executives speaking at the Beverage Forum stressed the importance of taking a light-touch approach with companies they buy.
"What we don't want to do is take an entrepreneurial company and put it inside a $6 billion company — that’s a proven recipe not to work."
James Trebilcock
Executive vice president and chief commercial officer for Dr Pepper Snapple
Indra Nooyi, chair and CEO of PepsiCo, acknowledged at the conference that's not an easy task. It’s important, she said, to retain the smaller company's management and headquarters as long as possible to minimize disruption.
“When you bring in a niche brand in the first tendency is for the big company’s divisions to say, ‘Give it to me,’" she said. “And then pretty soon the little niche brand gets lost inside the big company’s ecosystem.”
Trebilcock agreed with Nooyi. “What we don't want to do is take an entrepreneurial company and put it inside a $6 billion company — that’s a proven recipe not to work,” he said. "We want them to continue to do what makes them successful. We want them to continue to do what made us interested in buying them.”
