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Dr Pepper Snapple Group 2011

Forest David

A.

Case Abstract
Dr Pepper Snapple Group (DPS) is a comprehensive strategic management case that includes the companys year-end 2010 financial statements, organizational chart, competitor information and more. The case time setting is the year 2011. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Plano, Texas, DPSs common stock is publicly traded under the ticker symbol DPS. Headquartered in Plano, Texas, Dr Pepper Snapple (DPS) produces, bottles, and distributes Dr Pepper, Snapple, and other beverages in North America, including Canada, Mexico, and the US. DPS offers many non-alcoholic beverages including flavored, carbonated soft drinks and non-carbonated soft drinks, along with ready-to-drink non-carbonated teas, juices, juice drinks, and mixers. Among the companys popular brands are Dr Pepper, Snapple, A&W Root Beer, Hawaiian Punch, Mott's, Schweppes, Vernors, Squirt, and Royal Crown Cola. DPS is the #3 soda business in North America, after #1 Coke and #2 Pepsi. With more than 50 brands total, DPS is the leading producer of flavored beverages in North America and the Caribbean. DPS owns 6 of the top 10 non-cola soft drinks. Nine of DPSs 12 leading brands are No. 1 in their flavor categories. Other DPS beverages include Sunkist soda, 7UP, Canada Dry, Crush, Peafiel, Clamato, Venom Energy, Rose's and Mr & Mrs T mixers. DPSs Q3 2011 diluted EPS were $0.71 compared to $0.60 in the prior year period. For Q3 2011, DPS sales increased 5 percent and their income from operations was $261 million compared to $260 million in the prior year period.

B.

Vision Statement (proposed)


To become the number one choice for non cola flavored soft drinks in the world.

C.

Mission Statement (proposed)


We at Dr. Pepper Snapple Group believe in being the leader in the food and beverage industry (6). Our ability to provide our customers with great drink products (2) that fit into todays society is unparalleled (7). We are a global market competitor (3). Our responsibility to our employees is to give them the best chance to be successful (9). Our customers (1) are number one and we will continue to use the latest technology (4) to produce high quality products for their pleasure (5). At Dr. Pepper Snapple we believe good ethics is good business and operate that way on a daily basis in our communities (8) and show respect every employee (9). 1. 2. 3. 4. Customers Products or services Markets Technology

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5. 6. 7. 8. 9.

Concern for survival, growth, and profitability Philosophy Self-concept Concern for public image Concern for employees

D.

External Audit
Opportunities 1. 2. 3. 4. 5. 6. 7. 8. 9. Customers currently prefer favored soft drinks over colas such as Sunkist, Dr. Pepper, and A&W. Flavored teas, and bottled water are expected to grow 24 percent and 9 percent respectively. Customers are becoming more health minded in their food and drink choices. Brazil, India, and Eastern Europe should offer good long term opportunities. China's food and beverage consumption is forecasted to increase by 54.1% by 2014. 25% of Americans eat fast food each day. Energy drinks hold 62% of the functional beverages market. Coconut water is becoming a popular alternative to sports drinks such as Gatorade and Powerade. Weaker US Dollar.

Threats 1. 2. 3. 4. 5. 6. 7. 8. High commodity prices in sugar and tin. Soft drinks are considered discretionary products and dont perform well in poorer economic times. Increased concern in health and wellness among consumers. Sales are slower in the Winter months as the business is seasonal. Retailers are consolidating reducing the number of companies and increasing their bargaining power. Coke and Pepsi account for 63% of the sales in the industry. Store brand and private label products still have great appeal among cost conscious customers. Governments are looking to tax sugary drinks.

Competitive Profile Matrix


Dr. Pepper Critical Success Factors Advertising Market Penetration Customer Service Vending Locations R&D Employee Dedication Financial Profit Customer Loyalty Market Share Product Quality Top Management Price Competitiveness Totals Weight 0.12 0.06 0.09 0.10 0.06 0.07 0.10 0.09 0.08 0.09 0.04 0.10 1.00 Rating 3 1 4 2 4 2 2 1 1 4 2 4 Score 0.36 0.06 0.36 0.20 0.24 0.14 0.20 0.09 0.08 0.36 0.08 0.40 2.57 Pepsi Rating 2 3 2 4 3 3 4 3 3 3 3 3 Score 0.24 0.18 0.18 0.40 0.18 0.21 0.40 0.27 0.24 0.27 0.12 0.30 2.99 Coke Rating 4 2 3 3 2 4 3 4 4 2 4 2 Score 0.48 0.12 0.27 0.30 0.12 0.28 0.30 0.36 0.32 0.18 0.16 0.20 3.09

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EFE Matrix
Weight Rating Weighted Score Opportunities 1. Customers currently prefer favored soft drinks over colas such 0.07 4 0.28 as Sunkist, Dr. Pepper, and A&W. 2. Flavored teas, and bottled water are expected to grow 24 percent 0.06 4 0.24 and 9 percent respectively. 3. Customers are becoming more health minded in their food and 0.05 2 0.10 drink choices. 4. Brazil, India, and Eastern Europe should offer good long term 0.06 2 0.12 opportunities. 5. China's food and beverage consumption is forecasted to 0.06 2 0.12 increase by 54.1% by 2014. 6. 25% of Americans eat fast food each day. 0.05 2 0.10 7. Energy drinks hold 62% of the functional beverages market. 0.03 1 0.03 8. Coconut water is becoming a popular alternative to sports drinks 0.03 1 0.03 such as Gatorade and Powerade. 9. Weaker US Dollar. 0.03 2 0.06
Threats High commodity prices in sugar and tin. Soft drinks are considered discretionary products and dont perform well in poorer economic times. Increased concern in health and wellness among consumers. Sales are slower in the Winter months as the business is seasonal. Retailers are consolidating reducing the number of companies and increasing their bargaining power. Weight Rating Weighted Score 0.12 3 0.36 0.08 0.05 0.06 0.06 0.08 0.06 0.05 1.00 3 4 2 2 3 2 2 0.24 0.20 0.12 0.12 0.24 0.12 0.10 2.58

1. 2. 3. 4. 5.

6. Coke and Pepsi account for 63% of the sales in the industry. 7. Store brand and private label products still have great appeal among cost conscious customers. 8. Governments are looking to tax sugary drinks. TOTALS

E.

Internal Audit
Strengths 1. 2. 3. 4. 5. 6. 7. Dr. Pepper has 6 of the top 10 noncola soft drinks. CEO Larry Young was named 2010 beverage executive of the year by Beverage Industry Magazine. Sales in 2010 allowed DPS to: increase dividends 28%, pay down debt, and repurchase shares. National launch of Sun Drop in 2011. Snapple distributes their juices with labels indicating their health benefits. $715 million agreement with Coke to distribute Dr. Pepper, and Canada Dry in the United States. DPS markets many non carbonated drinks.

Weaknesses 1. 2. DPS as of 2011 does not have a written vision or mission statement. Profits were lower in 2010 than 2009 while Coke and Pepsi both had revenue growth over 13%.

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3. 4. 5. 6. 7.

Brands like Motts, A&W, and Canada Dry have not received any serious advertisement since the 1990s. Sunkist, 7UP, and A&W sales declined in 2010. Substantial portion of net sales are generated through bottlers not owned by DPS. 80% of revenues come from the sale of carbonated soft drinks. 89% of revenues come from the US.

Financial Ratio Analysis Growth Rate Percent Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.) Profit Margin Percent Gross Margin Pre-Tax Margin Net Profit Margin 5Yr Gross Margin (5-Year Avg.) Liquidity Ratios Debt/Equity Ratio Current Ratio Quick Ratio Profitability Ratios Return On Equity Return On Assets Return On Capital Return On Equity (5-Year Avg.) Return On Assets (5-Year Avg.) Return On Capital (5-Year Avg.) Efficiency Ratios Income/Employee Revenue/Employee Receivable Turnover Inventory Turnover Net Worth Analysis (in millions)
Stockholders Equity Net Income x 5 (Share Price/EPS) x Net Income Number of Shares Outstanding x Share Price Method Average $2,459 $2,640 $7,993 $8,001 $5,273

DPS 4.90 NA 6.90 11.95 1.63 NA

Industry 30.50 NA 7.90 9.85 14.68 9.67

S&P 500 14.50 NA 47.50 8.27 8.68 5.68

58.4 14.1 9.4 57.5

56.1 23.2 19.3 58.2

39.9 18.1 13.2 39.8

1.16 1.0 0.8

0.94 1.2 1.1

1.01 1.4 0.9

22.8 6.1 7.2 10.8 3.9 4.5

34.6 14.3 20.3 32.0 15.2 20.9

26.0 8.9 11.8 23.8 8.0 10.8

29,000 308,105 11.0 9.0

67,398 338,900 9.7 7.5

126,213 1 Mil 15.7 12.4

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IFE Matrix
Weight Rating Weighted Score Strengths 1. Dr. Pepper has 6 of the top 10 noncola soft drinks. 0.15 4 0.60 2. CEO Larry Young was named 2010 beverage executive of the 0.02 3 0.06 year by Beverage Industry Magazine. 3. Sales in 2010 allowed DPS to: increase dividends 28%, pay down 0.08 4 0.32 debt, and repurchase shares. 4. National launch of Sun Drop in 2011. 0.04 3 0.12 5. Snapple distributes their juices with labels indicating their health 0.05 4 0.20 benefits. 6. $715 million agreement with Coke to distribute Dr. Pepper, and 0.15 4 0.60 Canada Dry in the United States. 7. DPS markets many non carbonated drinks. 0.12 4 0.48

Weaknesses 1. DPS as of 2011 does not have a written vision or mission statement. 2. Profits were lower in 2010 than 2009 while Coke and Pepsi both had revenue growth over 13%. 3. Brands like Motts, A&W, and Canada Dry have not received any serious advertisement since the 1990s. 4. Sunkist, 7UP, and A&W sales declined in 2010. 5. Substantial portion of net sales are generated through bottlers not owned by DPS. 6. 80% of revenues come from the sale of carbonated soft drinks. 7. 89% of revenues come from the US. TOTALS

Weight Rating Weighted Score 0.03 0.08 0.04 0.05 0.05 0.06 0.08 1.00 1 1 2 2 2 2 1 0.03 0.08 0.08 0.10 0.10 0.12 0.08 2.97

F.

SWOT
SO Strategies 1. 2. Increase advertising by $200M marketing the health benefits of Snapple teas (S5, O3). Increase R&D by $200M to develop an energy drink (S7, O7).

WO Strategies 1. 2. Increase advertising by $300M for Canada Dry, A&W and other non cola flavored soft drinks (W3, O1). Build a new bottling plant in Croatia for $100M (W7, O4).

ST Strategies 1. Increase advertising by $100M for Snapple juice and tea products (S5, T3).

WT Strategies 1. 2. Develop a line of flavored waters without sugar in plastic bottles only (W2, T1). Develop a line of Christmas themed hot coco and ciders for $100M (T4, W6).

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G.

SPACE Matrix
FP 7 6 5 4 3 2 1

Conservative

Aggressive

CP

-7

-6

-5

-4

-3

-2

-1 -1 -2 -3 -4 -5 -6 -7

IP

Defensive

SP

Competitive

Internal Analysis: Financial Position (FP) Sales Debt/Equity Current Ratio ROE ROA Financial Position (FP) Average
Internal Analysis: Competitive Position (CP) Market Share Product Quality Customer Loyalty Product Variety Control over Suppliers and Distributors Competitive Position (CP) Average

5 4 4 4 2 3.8

External Analysis: Stability Position (SP) Rate of Inflation Technological Changes Healthy Options Competitive Pressure Barriers to Entry into Market Stability Position (SP) Average
External Analysis: Industry Position (IP) Growth Potential Financial Stability Ease of Entry into Market Resource Utilization Profit Potential Industry Position (IP) Average

-2 -2 -4 -6 -3 -3.4

-3 -2 -1 -3 -4 -2.6

4 5 5 5 5 4.8

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H.

Grand Strategy Matrix


Rapid Market Growth Quadrant II Quadrant I

Dr. Pepper

Weak Competitive Position

Strong Competitive Position

Quadrant III Slow Market Growth

Quadrant IV

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I.

The Internal-External (IE) Matrix

Segment Beverage Concentrates Packaged Beverages

Revenue 2010 (in millions) $1,156 $4,098

Operating Profit 2010 (in millions) $745 $536

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J.

QSPM
Develop a new line of flavors

Build a new bottling plant


AS 2 2 2 4 4 0 3 2 4 TAS 0.14 0.12 0.10 0.24 0.24 0.00 0.09 0.06 0.12

Weight Opportunities 1. Customers currently prefer favored soft drinks over colas such 0.07 as Sunkist, Dr. Pepper, and A&W. 2. Flavored teas, and bottled water are expected to grow 24 percent 0.06 and 9 percent respectively. 3. Customers are becoming more health minded in their food and 0.05 4. Brazil, India, and Eastern Europe should offer good long term 0.06 opportunities. 5. China's food and beverage consumption is forecasted to 0.06 6. 25% of Americans eat fast food each day. 0.05 7. Energy drinks hold 62% of the functional beverages market. 0.03 8. Coconut water is becoming a popular alternative to sports drinks 0.03 such as Gatorade and Powerade. 9. Weaker US Dollar. 0.03

AS 4 4 4 2 2 0 4 3 1

TAS 0.28 0.24 0.20 0.12 0.12 0.00 0.12 0.09 0.03

1. 2. 3. 4. 5. 6. 7. 8.

Threats High commodity prices in sugar and tin. Soft drinks are considered discretionary products and dont perform well in poorer economic times. Increased concern in health and wellness among consumers. Sales are slower in the Winter months as the business is seasonal. Retailers are consolidating reducing the number of companies and increasing their bargaining power. Coke and Pepsi account for 63% of the sales in the industry. Store brand and private label products still have great appeal among cost conscious customers. Governments are looking to tax sugary drinks.

Weight 0.12 0.08 0.05 0.06 0.06 0.08 0.06 0.05

AS 2 0 4 4 0 2 0 4

TAS 0.24 0.00 0.20 0.24 0.00 0.16 0.00 0.20

AS 1 0 2 2 0 4 0 2

TAS 0.12 0.00 0.10 0.12 0.00 0.32 0.00 0.10

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Develop a new line of flavors


1. 2. 3. 4. 5. 6. 7. Weight Strengths Dr. Pepper has 6 of the top 10 noncola soft drinks. 0.15 CEO Larry Young was named 2010 beverage executive of the 0.02 year by Beverage Industry Magazine. Sales in 2010 allowed DPS to: increase dividends 28%, pay down 0.08 debt, and repurchase shares. National launch of Sun Drop in 2011. 0.04 Snapple distributes their juices with labels indicating their health 0.05 benefits. $715 million agreement with Coke to distribute Dr. Pepper, and 0.15 Canada Dry in the United States. DPS markets many non carbonated drinks. 0.12 AS 4 0 0 0 0 1 3 TAS 0.60 0.00 0.00 0.00 0.00 0.15 0.36

Build a new bottling plant


AS 3 0 0 0 0 4 2 TAS 0.45 0.00 0.00 0.00 0.00 0.60 0.24

Weaknesses 1. DPS as of 2011 does not have a written vision or mission statement. 2. Profits were lower in 2010 than 2009 while Coke and Pepsi both had revenue growth over 13%. 3. Brands like Motts, A&W, and Canada Dry have not received any serious advertisement since the 1990s. 4. Sunkist, 7UP, and A&W sales declined in 2010. 5. Substantial portion of net sales are generated through bottlers not owned by DPS. 6. 80% of revenues come from the sale of carbonated soft drinks. 7. 89% of revenues come from the US.

Weight 0.03 0.08 0.04 0.05 0.05 0.06 0.08

AS 0 0 0 0 1 4 1

TAS 0.00 0.00 0.00 0.00 0.05 0.24 0.08

AS 0 0 0 0 4 2 4

TAS 0.00 0.00 0.00 0.00 0.20 0.12 0.32

TOTALS

3.72

3.80

K.

Recommendations
1. 2. 3. 4. 5. 6. 7. Increase advertising by $200M marketing the health benefits of Snapple teas. Increase R&D by $200M to develop an energy drink. Increase advertising by $300M for Canada Dry, A&W and other non cola flavored soft drinks. Build a new bottling plant in Croatia for $100M. Increase advertising by $100M for Snapple juice and tea products. Develop a line of flavored waters without sugar in plastic bottles only for $100M. Develop a line of Christmas themed hot coco and ciders for $100M.

L.

EPS/EBIT Analysis (in millions)


Amount Needed: $1,100M Stock Price: $36.69 Shares Outstanding: 214

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Interest Rate: 5% Tax Rate: 31%

EBIT Interest EBT Taxes EAT # Shares EPS

Common Stock Financing Recession Normal $800 $1,200 0 0 800 1,200 248 372 552 828 244 244 2.26 3.39

Boom $2,000 0 2,000 620 1,380 244 5.66

Recession $800 55 745 231 514 214 2.40

Debt Financing Normal $1,200 55 1,145 355 790 214 3.69

Boom $2,000 55 1,945 603 1,342 214 6.27

EBIT Interest EBT Taxes EAT # Shares EPS

Recession $800 44 756 234 522 220 2.37

20 Percent Stock Normal $1,200 44 1,156 358 798 220 3.63

Boom $2,000 44 1,956 606 1,350 220 6.13

Recession $800 11 789 245 544 238 2.29

80 Percent Stock Normal $1,200 11 1,189 369 820 238 3.45

Boom $2,000 11 1,989 617 1,372 238 5.77

M.

Epilogue
Year-to-date including Q3 2011, DPSs sales increased 5 percent and their income from operations was $753 million compared to $757 million in the prior year period. Net income was $440 million compared to $416 million in the prior year period. DPSs natio nal launch of Dr Pepper TEN is benefiting the firm as it continues to build per capita consumption with new fountain availabilities and cold drink placements. For the Q3 of 2011, DPSs volume declined 1 percent with carbonated soft drinks (CSDs) flat comp ared to the prior year and non-carbonated beverages (NCBs) down 5 percent. In CSDs, Sun Drop added 2 million cases, Canada Dry volume grew double digits and Squirt grew low-single digits. Dr Pepper volume was flat. Crush and Sunkist soda declined double digits while 7UP and A&W grew low-single digits. Fountain foodservice volume grew 4%. In NCBs, Clamato volume grew double-digits and Snapple grew 2 percent. Both Hawaiian Punch and Motts volume declined as net pricing increased, driving sales dollar increa ses for both brands. Aguafiel also declined double-digits. In Q3 2011, DPSs U.S. and Canada CSD volume was flat while NCB volume declined 5 percent. In Mexico and the Caribbean, CSD volume grew 4 percent while NCB volume declined 6 percent. Year-todate through September 2011 and across all measured channels, as reported by The Nielsen Company, U.S. CSD dollar share declined 0.2 percentage points. Regarding DPSs Latin America Beverages in Q3 of 2011, sales for the quarter increased 4 percent reflecting low-single digit price increases, favorable product mix and 2 percent volume growth. A the end

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of Q3 2011, DPS said it expects full year 2011 reported sales to increase 3 percent to 5 percent and diluted earnings per share to be in the $2.70 to $2.78 range.

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