Dr Pepper Snapple Group 2011: Fighting to Prosper in a Highly Competitive Market
Respond to the following:
The case study outlines six specific strategies that the firm has chosen to support its strategic direction. Determine which strategy is most likely to benefit the firm. Explain your rationale.
Briefly outline at least one other strategy the firm could take to support its strategic direction. Illustrate why this new strategy would be successful.
The strategies outlined are as follows:
Build and enhance leading brands.
Focus on opportunities in high-growth and high-margin categories.
Increase presence in high-margin channels and packages.
Leverage the firm's integrated model.
Strengthen the firm's distribution channels through acquisitions.
Improving operating efficiency.
Larry Young, President and CEO of Dr Pepper Snapple Group, Inc. (NYSE: 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 credit markets and led to unprecedented commodities prices. In spite of adverse economic conditions and fierce competi- tion, 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 reduce 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 owned by Cadbury Schweppes, 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 revenue growth in 2010 of 13.3 percent, 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 manufacturing 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, eventually forming 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 Morrison and Lazenby started has become one of the largest beverage manufacturers in North America. DPS's current product portfolio 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 a soft drink company, and Schweppes, an international beverage brand. In the three decades that followed, Cadbury Schweppes gained the third largest share of the beverage market in North America through strategic acquisitions. Some notable acquisitions included the Duffy-Mott Company (later known as Mott's), Canada Dry, Sunkist, Crush, and Sun Drop in the 1980s. In 1993, the company bought the A&W brands Squirt and Vernors as well as its signature root beer and cream
Reference book: Hitt, Michael A. Strategic Management: Concepts and Cases: Competitiveness and Globalization, 10th Edition. Cengage Learning.