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Dr Pepper/Seven Up, Inc.

FOUNDED: 1885 (Dr Pepper); 1936 (The Seven Up Company); 1988 (Dr Pepper/Seven Up, Inc.)

Contact Information:

HEADQUARTERS: PO Box 869077
Plano, TX 75086-9077
PHONE: (972)673-7000
FAX: (972)673-7980
TOLL FREE: (800)527-7096
URL: http://www.drpepper.com

OVERVIEW

Dr Pepper is a 113-year old company, the oldest major soft drink brand in the United States; Seven Up is almost 70 years old. The two merged in 1988 after they were both bought by Hicks and Haas, a Dallas investment firm. The new company, Dr Pepper/Seven Up, Inc. was acquired in 1995 by Cadbury Schweppes PLC, a British candy and beverage company. Cadbury Schweppes looks at Dr Pepper as a leading brand and hopes changes to the formula and packaging of 7Up will make it a major player in the soft drink industry.

The greatest challenge to Dr Pepper/Seven Up is solving its distribution problem. In the United States the company relies mainly on Coke and Pepsi bottlers to make and distribute its products. Understandably, the big two would rather have their bottlers concentrate on their own brands, even though Pepsi retains the non-U.S./Puerto Rico rights to 7Up. Dr Pepper/Seven Up's plans for the future include a joint venture company that will distribute its products to parts of the United States.

The other challenge to the company is positioning 7Up as an alternative to Sprite. In early 1998 the formula for 7Up was changed and was met with increased volume sales in areas where the company heavily advertised.

COMPANY FINANCES

Although Cadbury Schweppes began as a candy company, by 1995 beverages accounted for half of its total sales. The beverage division, which includes Dr Pepper/Seven Up, had worldwide sales of $4.9 billion in 1996, 56 percent of Cadbury Schweppes' $8.8 billion in sales for the year. In 1997 the division's worldwide sales of $3.3 billion accounted for 47.4 percent of Cadbury Schweppes' $6.9 billion in sales. The total decrease in sales for the beverage division was __BODY__.6 billion, or 32.7 percent, from 1996 to 1997. Profits of the Cadbury Schweppes beverage division also fell from $752 million in 1996 to $567 million in 1997, a decline of 24.6 percent. During a 52-week period in 1997-98, the company's stock sold for a high of $63.50 per share and a low of $34.63.

While worldwide sales of the Cadbury Schweppes division fell 32.7 percent from 1996 to 1997, sales rose 116.1 percent in the United Kingdom, 7.0 percent in Africa, and 1.4 percent in the United States. Sales declined in Europe (13.0 percent) and in the Pacific Rim (2.6 percent).

ANALYSTS' OPINIONS

Some analysts noted that Dr Pepper/Seven Up handled the takeover by Cadbury Schweppes smoothly. Although sales of Dr Pepper declined slightly in 1995, it remains a popular brand with consumers and distributors. While Dr Pepper is perceived as a strength to the company, Seven Up is seen as a weakness, as it never seems to beat out its competitor Sprite.

Some analysts say Dr Pepper/Seven Up needs to distinguish itself in the marketplace—giving consumers a reason to choose its products. Others say if Seven Up doesn't do something to set it apart from Sprite, it will probably fade into obscurity.

HISTORY

In 1885 Charles Alderton, a pharmacist, poured the first Dr Pepper at Morrison's Old Corner Drug Store in Waco, Texas. Dr Pepper (which dropped the period in "Dr" in the 1950s) was named after Dr. Wade Morrison's first employer, Dr. Charles Pepper, but it was also called "Waco" for a brief period of time. Of all major soft drinks in the United States, Dr Pepper is the oldest brand and the oldest manufacturer of concentrates and syrups.

The popularity of Dr Pepper spread beyond Waco, and soon others wanted to buy the syrup to sell at their soda fountains. A ginger ale bottler, Robert S. Lazenby, agreed to produce Dr Pepper syrup for sale. Lazenby engineered the first mass introduction of Dr Pepper at the 1904 St. Louis World's Fair. Lazenby and Morrison eventually formed the Artesian Manufacturing & Bottling Company, adopting the name Dr Pepper Company in 1924. In 1946 Dr Pepper went public and was listed on the New York Stock Exchange.

Dr Pepper remained a fairly obscure regional soft drink through its early years and on into maturity. Despite more than a century of existence, Dr Pepper did not become a truly national product until the mid-1980s, having been introduced nationally in the 1970s.

In 1984, management, attempting to avert a hostile takeover of the company, sold Dr Pepper for $416 million. The buyer was Forstmann Little, a multibillion-dollar partnership based in New York. Forstmann Little & Company privatized the company and took it off the New York Stock Exchange in February 1984. According to one long-term company executive, the Forstmann Little purchase was made merely to raise quick money for the investors. The partnership sold Dr Pepper in 1986.

C. L. Grigg, owner of The Howdy Company, developed 7Up in 1929. Grigg created the lemon-lime soda to go with the Howdy Orange drink. The popularity of the new soda led Grigg to change the company name to The Seven Up Company in 1936. By the late 1940s 7Up was the third-best-selling soda in the world. During this time the Grigg family maintained private ownership, but took the company public in 1967.

In 1978 tobacco giant Philip Morris purchased The Seven Up Company, looking to diversify from its tobacco holdings. Sales of 7Up began to decline, and a decade later Philip Morris was looking for a buyer. It thought it had a buyer in PepsiCo until the Federal Trade Commission ruled the sale anticompetitive. At the same time, the FTC ruled another sale anticompetitive—that of Dr Pepper by Forstmann Little & Company to Coca-Cola. A Dallas investment firm, Hicks and Haas, stepped in and bought both companies in 1986. The two companies were merged in 1988, creating Dr Pepper/Seven Up, Inc.

Cadbury Schweppes, a British candy and beverage maker, acquired Dr Pepper/Seven-Up in March 1995 for __BODY__.7 billion. The company's goal is to have "global leadership in the non-cola sector of the soft drinks market." The acquisition tripled Cadbury Schweppes' share of the soft drink market, making it an industry leader overnight.

STRATEGY

One of Cadbury Schweppes' strategies is to focus on key brands, especially Dr Pepper. The company wants to expand markets, be an innovator in flavors and packaging, and develop an efficient way of delivering its soft drinks to consumers.

Dr Pepper/Seven Up has distribution agreements with Coke and Pepsi bottlers. Coca-Cola and PepsiCo have exerted pressure on bottlers to dump Cadbury beverages from their lines, as well as at venues such as stadiums and athletic facilities, and to sign exclusive agreements for sales of their products. It has, therefore, become important for Dr Pepper/Seven Up to have its own distribution network, instead of relying on competitors.

Dr Pepper/Seven up continues to offer and promote special incentive programs for the various beverages in its line. In the first quarter of 1997 Dr Pepper sent a trade mailer to bottlers and managers in its various distribution channels as a "thank you" and reminder about the brand. The mailer was also sent to the media and investment brokers. A consistent strategy has been the company's sponsorship of various sporting events and participation in events such as the Tournament of Roses Parade.

New marketing plans and product designs were launched in 1997. Dr Pepper's "This Is The Taste" campaign led to record sales of the soft drink—brand sales grew almost double the industry rate. Also new for 1997 was Dr Pepper's new angle bottle. The company added top soda fountain accounts as well.

In 1998 7Up was made from a new formula and sold in a new splash bottle. Backing the changes was a new advertising campaign that included frequent samples to consumers.

INFLUENCES

Dr Pepper/Seven Up continues to plan long-term for its own distribution system—currently, Coke and Pepsi bottlers account for over half of the company's distribution. A new joint venture called The American Bottling Company was formed in February 1998. The new company will buy two independent bottling groups and distribute Dr Pepper/Seven Up in the midwestern United States. Cadbury Schweppes extended its licensing agreement with Coca-Cola Enterprises through December 2005 for distribution of its soft drinks in other areas of the United States.

PRODUCTS

Dr Pepper/Seven Up's market analysis of its customers' consumption habits shows that Dr Pepper drinkers tend to be heavy soft drink consumers. They also drink Dr Pepper in larger quantities than those who primarily drink other brands. At the end of 1997, Dr Pepper's U.S. market share had increased to a record 6.3 percent. Sales declined throughout 1997 for 7Up, but at a slower rate than previous years; fourth-quarter sales were in line with fourth-quarter 1996 sales. In the first quarter of 1998, in which the new formula received strong support, the volume of 7Up sold was up between 7 and 21 percent.

The conglomerated Dr Pepper/Seven Up offers numerous beverages as a result of its purchase by Cadbury Beverages. These include (in order of 1996 sales) Dr Pepper, 7Up, Canada Dry, Diet Dr Pepper, Diet 7Up, Sunkist, Squirt, A&W Root Beer, Schweppes, Crush, Welch's, Sun-drop, Vernors, IBC Root Beer, Country Time, A&W Cream Soda, Cherry 7Up, Diet A&W, Hines, Caffeine Free Diet Dr Pepper, Diet Cherry 7Up, and Caffeine Free Dr Pepper. In terms of overall market share in 1997, Dr Pepper placed fourth among soft drinks; 7Up placed seventh, just behind competitor Sprite. The top three drinks—Coca-Cola, Pepsi-Cola, and Diet Coke—remain the top sellers.

GLOBAL PRESENCE

Because parent Cadbury Schweppes is based in the United Kingdom, Dr Pepper/Seven-Up classifies as a "foreign" holding. The company enjoys a healthy presence in an estimated 200 markets outside the United States. In 1996 Dr Pepper was introduced in Australia, Mexico (the second-largest soft drink market in the world), and Russia, and was re-launched in the United Kingdom. Company market research showed a 41 percent brand awareness prior to the launch and a 93 percent brand awareness after the aggressive introduction.

SOURCES OF INFORMATION

Bibliography

Benezra, Karen. "Dr Pepper Seem Closer To Forging Bottler Deal." Brandweek, 10 November 1997.

The Cadbury Schweppes Home Page, 1 May 1998. Available at http://caburyschweppes.com.

Demaret, Kent. "'Foots' Clements, Master of the Soft-Drink Sell, Makes a Hot Deal." People Weekly, 8 September 1986.

The Dr Pepper Clock Dial. Dallas, TX: Dr Pepper, Spring 1997.

"History of Dr Pepper." Dr Pepper Museum and Free Enterprise Institute, 4 June 1998. Available at http://www.drpepper.com.

Rodengen, Jeffrey L. "The Legend of Dr Pepper/Seven-Up." Fort Lauderdale, FL: Write Stuff Syndicate, Inc. 1995.

Theodore, Sarah. "Breaking New Ground; Dr Pepper/Seven Up Recreates Itself for Its New Role in the Soft Drink Industry." Beverage Industry, January 1997.

"The Top 10 Soft Drink Review." Beverage World, March 1997.

For an annual report:

on the Internet at: http://www.cadburyschweppes.com

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Dr Pepper/Seven Up's primary SICs are:

2087 Flavoring Extracts Etc., NEC

6719 Holding Companies, NEC