Dr Pepper Snapple Gives In To Health Advocacy Pressure On 7-Up With Antioxidents
Following pressure from health advocacy groups in the US, Dr Pepper Snapple (NYSE:DPS) announced the discontinuation of its ‘7-Up with antioxidants’ line of beverages in the country. The product had come under fire for misleading consumers about the potential health benefits of the product, whose packaging suggested it had antioxidants from fruits that help fight against cancer-causing free radicals. The advocacy group, The Center for Science in the Public Interest, sued Dr Pepper Snapple in the first week of November, alleging that the drink only contained added Vitamin E. The group also objected to the product line on the basis of the FDA’s guideline that no soft drink should be fortified with added nutrients. [1]
See our full analysis for Dr pepper Snapple Group
The news gains importance in the wake of Dr Pepper Snapple’s disappointing Q3 results which were below market expectations. The results also led the company to lower its overall sales outlook for the full year. This development shows how soft drink manufacturers are coming under increasing pressure from health advocacy groups, whose campaigns against soft drink consumption is leading to declining overall sales in a market that is already highly competitive. ((Dr Pepper Snapple Cuts Sales Outlook, October 2012, The Wall Street Journal))
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This spells bad news for Dr Pepper Snapple, which according to our estimates, draws nearly 78% of its stock price from sales of carbonated beverages in North America. The lack of diversification in product mix places the company in an unfavorable position compared to PepsiCo (NYSE:PEP) and Coca-Cola (NYSE:KO).
On the brighter side, we expect this latest development to further encourage PepsiCo and Coca-Cola to focus more resources on improving carbonated beverage sales in emerging economies. As Dr Pepper Snapple gains more room to maneuver in the North American carbonated beverage market, we could see the company steadily increase its market presence, even as the overall size of the market shrinks slowly but steadily.
We estimate a $46price for Dr Pepper Snapple, which is 5% above the market price.
Notes:- Snapple sued over 7-Up’s ‘antioxidant’ claims, November 2012, NYDailyNews.com [↩]