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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.
C.
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.
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%.
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
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).
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
H.
Dr. Pepper
Quadrant IV
I.
J.
QSPM
Develop a new line of flavors
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.
AS 2 0 4 4 0 2 0 4
AS 1 0 2 2 0 4 0 2
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.
AS 0 0 0 0 1 4 1
AS 0 0 0 0 4 2 4
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.
Common Stock Financing Recession Normal $800 $1,200 0 0 800 1,200 248 372 552 828 244 244 2.26 3.39
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
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.