The company, which makes Dr Pepper, Canada Dry and Crush, hopes a tamer promotional environment will help boost profits even as commodity costs rise, said the report. In its favor: Shoppers are showing greater thirst for flavored sodas--a category that includes Dr Pepper's 7UP, Sunkist and A&W root beer--than for regular colas. [image-nocss] That has helped Dr Pepper Snapple, which is the third largest beverage company in North America by retail sales but the biggest U.S. seller of flavored sodas, carve out a bigger slice of the soda market.
For the first nine months of 2010, Dr Pepper Snapple's carbonated soft-drink market share grew to 19.8%, up from 19.1% a year earlier, according to the report, citing Beverage Digest. Coca-Cola Co. is at 34.2%, and PepsiCo is at 33.2%, but the two giants have seen their shares slip in the same period.
Meanwhile, consumer prices for carbonated drinks in November were 2.1% above the year-earlier level, compared with 1.1% for all consumer prices and 1.5% for food items, according to the report, citing the U.S. Bureau of Labor Statistics.
The 56-year-old Mr. Young, who became CEO in 2007 after leading the company's bottling group, says he drinks a daily diet of Dr Pepper Snapple products, including Venom Energy Drink in the morning, Snapple's Diet Green Tea during the day and Diet RC Cola with dinner. He led the company's spinoff from Cadbury PLC in May 2008.
WSJ: How has the promotional environment changed since the summer?
Young: Wal-Mart and everyone else learned a real lesson. They went way too deep on price, and it didn't pick the volume up. When everyone goes down in price, there's no reason to buy. You stock up, put it in your pantry and don't buy [again] for six months. [Now] throughout the industry [I think] you're going to see rational pricing. It's not going to be ridiculously high or ridiculously low.
WSJ: What are you doing with pricing?
Young: When commodities go up like they have, our customers [retailers] who have their own private-label brands need to [increase prices]. But they don't want to raise prices so much that closes the gap between their brand and our brands. So it comes in unison. They go up a bit, we go up a bit.
WSJ: How will rising commodity costs affect the business?
Young: The good thing is that it's an industry issue. It's up from last year, but we think we can manage just fine. I think we're looking at total cost of goods up 2%. We'll offset that with pricing and efficiencies in the supply chain.
WSJ: How is the recovery unfolding?
Young: We're seeing an uptick, but it's not where we projected it would be last year. When I was laying things out for 2010, I was telling everyone that the first trimester of 2010 would be down, the second trimester flat and the third trimester would be back up again. We're seeing that trend but not up to the level we thought we would.
WSJ: Where are there signs that the economy is improving?
Young: Detroit, Mich.--it's starting to pick up a little bit more. But you had to go awful low there. It was sad. California, Arizona and Florida are still a little softer than other parts of the country. We're very pleased with Texas, too. Restaurants are one of the greatest indicators of a recovery. We're seeing traffic up there in fast food, so that's a good indicator.
WSJ: What strategies are you using to sell more drinks?
Young: Whenever you have a down economy, you want to make sure you've got the right products out there day by day, but that [customers] also see a value to it. Snapple for years was sold in a 12-pack, and we relaunched it with a six pack, which is much more convenient.
WSJ: Dr Pepper Snapple is only in North America. What are your international plans?
Young: None right now. We've got a road map that gives us a tremendous amount of opportunity for the next 10 to 15 years in the U.S.
WSJ: What do you worry about?
Young: Of course you always worry about the consumer and the economy, but we're seeing it come up. One other thing that keeps me awake at night is [soda-tax] legislation. You've got states, you've got cities that have huge deficits in their budgets, so they look for a tax. We spend a lot of time to make sure it doesn't happen by getting the facts out there. It's all about calories in, calories out, active lifestyle.
WSJ: How likely is it that any soda tax will be passed?
Young: We've had a lot of tries, especially in New York, and we've been successful in avoiding those. I know we can win them, but it's the one that slips in that we don't notice. The biggest effect would be that they'd be putting a tax on the people at the wrong time.
Dr Pepper Snapple Group Inc., Plano, Texas, produces flavored beverages in North America and the Caribbean. In addition to its flagship Dr Pepper and Snapple brands, the company's portfolio includes Sunkist soda, 7UP, A&W, Canada Dry, Crush, Mott's, Squirt, Hawaiian Punch, Penafiel, Clamato, Schweppes, Venom Energy, Rose's and Mr & Mrs T mixers.
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