The US’s third-largest soda player reported its FY 2013 results yesterday, with CEO and president Larry Young reflecting on the “toughest carbonated soft drinks (CSDs) headwinds I’ve seen in my career”.
The DPS balance sheet showed net sales down 1% year-on-year to $1.463bn for Q4 ending December 31 while net income fell % to $156m; full year sales were almost static at $5.997bn, while net income fell % to $623m.
CSD sales declines – for diet varieties in particular , given consumer wariness of artificial sweeteners – are especially worrying for DPS given its heavy portfolio gearing (circa. 80%) in this direction.
Throughout 2013 Dr Pepper volumes fell 2% and DPS’s Core 4 brands (which include its ten-calorie TEN varieties) fell 1%, led by mid single-digit declines for 7UP and Sunkist and a low single-digit fall for A&W only partially offset by a mid-single digit climb for Canada Dry.
‘Proprietary blend’ of stevia and sugar
DPS is striving to rekindle the consumer love affair with soda, and Young said DPS’s sweetener R&D means it is ready to test 60-calorie stevia and sugar-sweetened version of its flag brands with no compromise on taste.
Dr Pepper is the first of the US soda ‘Big Three’ – along with PepsiCo and Coke – to trial stevia in its US flag brands; but last year Coke launched Coca-Cola Life in Argentina and PepsiCo is promising ‘disruptive innovation’ with sweeteners in 2014. That said, in late 2008 Coke did launch the now little publicized Sprite Green (using Cargill's Truvia stevia) to achieve a 50% calorie cut.
“Our R&D team has put together a proprietary blend with stevia and sugar that we’ve been very pleased with…this will be a very limited test and the biggest thing is to get consumer insights,” Young said.
DPS will work with a national retailer to analyse data, Young said. “We hear what people are telling us, they want natural but we want to see if they buy the natural and where we should put the natural.”
Will an ‘all natural’ soda resonate with consumers?
Pouring over the move, Wells Fargo Securities analyst Bonnie Herzog said: “Critically, we think this product will represent a good litmus test of whether an ‘all natural’ product does in fact resonate with consumers.
“Should this ultimately be launched more broadly, we believe the industry could see meaningful new products from all the major manufacturers come to market soon, which could have a positive impact on CSD volumes in the US,” she added.
DPS has also engaged comedian Chelsea Handler to back its TEN platform this year via packaging, in-store displays, merchandizing and digital, as it continues to invest behind the platform despite analyst doubts .
Unveiling DPS’s plans for 2014 Young said was innovating around key brands and focusing on engaging with Hispanic consumers – a key US growth demographic – with a dedicated sales and marketing team.
“We’re leveraging two of our largest trademarks, Canada Dry and Schweppes to capitalize on the growth in carbonated waters,” he said.
Snapple Straight Up Tea trial, with less sugar…
DPS will expand Canada Dry Sparkling Selzer Waters into new markets and launch a peach mango flavour; it will also launch a Schweppes Sparkling Waters line across the States.
January 27 also saw DPS announce a new Mott’s Fruit Punch juice drink line for kids – Rush, Surge and Boom are made with fruit juice, have 40% less sugar and no artificial sweeteners – available nationwide from March 2014.
“Consumers have told us they want a less sweet tea. So we’re testing Snapple Straight Up Tea across several markets,” Young said.
“Straight up Tea has a true tea taste and is made from all-natural black tea with a touch of real sugar and only 40 calories per serving,” he added.
“And we’ll continue to leverage our allied brands – gaining entry into emerging and growing categories with Vita Coco and Bai, an all-natural juice made from coffee fruit,” Young said.