Dr Pepper Snapple Is Heavily Dependent On CSDs, But That’s Not A Problem

by Trefis Team
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Dr Pepper Snapple (NYSE:DPS) is used to being the perpetual third behind its much larger compatriots The Coca-Cola Company (NYSE:KO) and PepsiCo (NYSE:PEP) in the U.S. carbonated soft drinks market (CSD). Both Coca-Cola and PepsiCo have a considerable portion of their revenue come from outside the U.S., which further boosts their overall CSD revenue, compared to that for Dr Pepper. In 2015, while 46% and 56% of Coca-Cola and PepsiCo’s net sales came from the U.S., a larger 89% of Dr Pepper’s revenue came from the domestic market.

Dr Pepper is more dependent on CSDs than both Coca-Cola and PepsiCo are, with 82% of its net volume in this beverage category.

DPS Q&A 17

Coke and Pepsi’s CSD revenue is ~6x and 2.5x respectively of Dr Pepper’s CSD revenue, but almost 80% of Dr Pepper’s net revenue comes from this category, reflecting the dependence on sodas for the Texas-based manufacturer. Considering that ~80% of Dr Pepper’s net revenue comes from CSDs and ~90% of the net revenue comes from the U.S., the declining demand for CSDs could be alarming for the company.

However, Dr Pepper has managed to extract growth in this segment despite the mature nature of the U.S. CSD market and stronghold of both Coca-Cola and PepsiCo, who together hold close to 70% of the market share. Why Dr Pepper has managed to grow is also because of its relatively small market share. Dr Pepper is taking away share from other companies, especially PepsiCo, which has lost share continuously in the last few years, in a mature U.S. CSD market. But mostly, Dr Pepper has been able to grow its revenue per case due to positive package and price mix, which has boosted its CSD revenue in North America (U.S. and Canada), which formed 92% of the company’s net sales in 2015.

DPS Q&A 17-1

Favorable package and price mix helped increase CSD sales by 3% in Q1. Companies are moving to single-serves, which have higher price per unit, thus boosting the revenue per case. Although Coca-Cola and PepsiCo emphasized  smaller packs before Dr Pepper did, the latter is catching up, and could continue to see growth in CSDs due to the expected rise in its revenue per unit volume. Trefis estimates North America CSD revenue for Dr Pepper to grow at 1.8% CAGR through 2015-2020. The figure grew at 2% between 2010-2015.

Have more questions on Dr Pepper Snapple? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Dr Pepper Snapple

 

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