Dr Pepper Snapple Aims High in the Evolving World of Beverages
Further growth
As we discussed earlier in this series, given the sluggish demand for CSDs (carbonated soft drinks), Dr Pepper Snapple Group (DPS) has adopted a strong strategy by acquiring an 11.7% stake in the BodyArmor sports drink line. But aside from sports drinks, Dr Pepper Snapple could look for further growth in other prominent non-carbonated beverage categories like bottled water, ready-to-drink tea and coffee, and energy drinks.
Volume growth
According to Beverage Marketing Corporation, in 2014 the ready-to-drink coffee category posted a volume growth of 10.7%, which was higher than all other non-alcoholic beverages. Bottled water volume grew by 7.3%, and energy drinks grew by 6.4% in volume. The volume of beverages consumed in the ready-to-drink category grew by 3.7% in 2014.
Beverage companies are thus increasingly looking for growth opportunities in these alternative categories, through both organic and inorganic expansion. To capture the growth in the energy drinks market, The Coca-Cola Company (KO) acquired a 16.7% stake in Monster Beverage Corporation (MNST) for $2.2 billion. In May 2015, PepsiCo (PEP) launched four new flavors under its AMP Energy brand. Dr Pepper Snapple recently launched the Snapple Straight Up Tea nationally.
Coca-Cola, PepsiCo, and Dr Pepper Snapple together account for ~3% of the portfolio holdings of the iShares Russell 1000 Growth ETF (IWF). Dr Pepper Snapple makes up 0.5% of the iShares Russell Mid-Cap Growth ETF (IWP).
Non-carbonated beverage performance
Non-carbonated beverages are performing better than CSDs. In 2Q15, Dr Pepper Snapple’s non-carbonated beverage volume grew by 3%, compared to CSD volumes, which increased by 1%. Coca-Cola’s non-carbonated beverages registered a 5% growth in their 2Q15 volumes, and the company’s sparkling beverage volume grew by 1% in the second quarter. PepsiCo’s non-carbonated beverage volume was up by 4% in 2Q15 in the North America region, while CSD volumes fell by 3%.
But Dr Pepper Snapple still derives 80% of its volumes from CSDs. The company could bring down this exposure and capture the growth opportunities in other non-soda categories, which health-conscious consumers increasingly prefer.
For more updates, visit our Nonalcoholic beverages.
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