Yesterday the company reported positive results, with net sales up 1.2% year-on-year to $1.398bn for Q1 ending March 31 2014, while net income was up 31% at $155m.
But flag brand Dr Pepper's volume sales fell 4% during the quarter, and DPS's Core 4 brands including TEN were flat due to declines for Sunkist soda, A&W and flat sales for 7UP. Sales of non-carbonated DPS stalwart Hawaiian Punch (with 5% fruit juice) fell 8%.
Wendy Nicholson from Citigroup asked Young where he expects growth on the non-carbonated side of the business to come from, given DPS’s stated desire to shift its volume ratio away from a circa. 80% CSD bias.
“Can you talk a little bit more, number one, about Hawaiian Punch. It just seems like that business is sort of dying. Maybe no, it’s such a slow death. But it seems to not grow no matter what you do,” Nicholson asked.
“Are you giving up there or what’s your strategy on Hawaiian Punch?” she added.
Competition not pulling any punches
Defending Hawaiian Punch as a “huge brand”, Young admitted it had struggled to find growth, but said the volumes were such that DPS would not give up on the drink.
He also alluded to tougher competition in the punch sector – 2014 launch Punch Monster will see Monster Energy push again on the RTD side, with CEO Rodney Sacks "noting the broad appeal" of punch in January, while a recent Mintel report notes that fruit juice and fruit drink players are experimenting with exotic blends, to strengthen their appeal to Millennials and US consumers keen on 'local' tastes.
No doubt with this in mind, Young said: “Wendy…when you look at it, there’s a lot more competition out there. For a long, long time, Hawaiian Punch was pretty well the player…we’re seeing a lot more.
“We’re seeing Tang [Mondelez] out there now, Kool-Aid out there, private label, Tampico. There’s just a lot more playing in that aisle,” he added.
“So we’re looking at it. We’re not doing anything silly with it – we’re not doing anything with pricing. We think it’s starting to level off a little bit. It’s not as bad as it was,” Young said.
Sales of Hawaiian Punch were picking-up with the line’s largest customer, Walmart, Young insisted. “It probably won’t be back to the growth levels it used to be, but it will continue to be profitable for us,” he said.
Dr Pepper – ‘Light numbers, but a lot happening’
Defending the performance of Dr Pepper – Judy Hong from Goldman Sachs noted sales declines across eight consecutive quarters – Young said its brand health scores continued to increase, and said that DPS started a renewed marketing push for its low-calorie TEN platform from March.
“We’ve got a lot of things happening with Dr Pepper. The numbers were light coming in, but… the majority of that was January and February which was just tremendously impacted by weather and by the QSR [Quick Service Restaurants] being down in our fountain foodservice.”
Trials with Dr Pepper, 7-UP and Canada Dry sweetened with stevia and sugar continued, Young added, but he said it was too early to assess results given their launch at the end of March.
“We want to know where it should be,” he said. “Should it be in the normal CSD section, should it be in the natural foods, should it be standalone display, should it be stackers?
“We have it in different places. We’re seeing where the best results are,” he added.