Dr. Pepper Snapple: Energy Drinks

Case Recap

In September 2007, Andrew Barker, brand manager for Snapple beverages at the Dr Pepper Snapple Group, Inc., was assigned the task of assessing whether or not a profitable market opportunity existed for a new energy beverage brand to be produced, marketed and distributed by the company in 2008. At the time Dr Pepper Snapple Group was the only nonalcoholic beverage company in the United States that did not offer an energy drink. The decision came down from the senior management as part of a corporate business strategy to focus on opportunities in high management growth and high margin beverage business.

Problem Identification

The problem facing Dr Pepper Snapple was deciding whether the company should enter the energy drink market. Energy drinks are broadly defined as drinks that provide a consumer with a boost of energy. In 2006 energy drinks were the fourth largest nonalcoholic beverage category in the United States, after carbonated soft drinks, sports drinks and bottled water. The energy drink market is a high growth and high margin business. This recent rise in these drinks has Dr Pepper Snapple wanting to enter this fast growing market.

Identify the root problem components

Dr Pepper Snapple Group, Inc. is a major integrated brand owner, bottler and distributor of nonalcoholic beverages in the United States, Mexico and Canada. In 2007 the company posted net sales of $5.748 billion. At the time of consideration, Dr Pepper Snapple was primarily in the flavored carbonated soft drink (CSD) market segment. The company's brands consist of Dr. Pepper, 7UP, Sunkist, A&W and Canada Dry, in addition to regional and smaller niche brands. The company is also a manufacturer of beverage concentrates and fountain syrups, which they use in there bottling operations and sell to their party bottling companies. The company has 18.8% share of the U.S CSD market segment.

In the noncarbonated soft drink (non-CSD) market segment, they primarily participate in the ready to drink tea, juice, juice drinks and mixer categories. The company's key brands are Snapple, Mott's, Hawaiian Punch and Clamato, in addition to regional and smaller niche brands. The company manufactures most of the non-CSDs as ready to drink beverages and distributes them through its own distribution network and third party or direct to customer warehouses. The company also manufactures Mott's apple sauce as a finished product.

The company would be competing with Red Bull, the energy drink market pioneer. Red Bull the subsidiary of Red Bull GMBH in Austria, introduced their product to the United States in 1997. Red Bull remains the market leader in dollar sales and unit volume, even though dollar market shares have dropped from 82% to 43%, from 2000 to 2006. This drop is due to new, aggressive competitors and brands with lower prices. Red Bull continues with U.S. media expenditures, estimating $60.9 million media exposure in 2007.

The issue for Andrew Barker and his team is to determine what would be the best plan for them to enter the market of a new energy drink. The biggest expenditure necessary would be media advertising and promotion to launch a new energy drink and Dr Pepper Snapple does not have the media advertising funds to compete with Red Bull. Other factors of analysis would be pricing, expected unit volume and trade and brand margins, to determine if a new brand would be a profitable opportunity.

SWOT Analysis

Strengths:

* Strong portfolio of leading consumer preferred brands. (CSD & non-CSD brands)

* Integrated Business Model, its brand ownership, bottling and distribution are more integrated than its competitors.

* Strong