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View Full Version : Coke pays $715M to distribute Dr Pepper



Mr Zabe
06-07-2010, 02:54 PM
(Note: I posted this from my morning Chicago Tribune news site. I doubled
checked with BevNet's news link before I posted this message. This news was
not posted prior to this post. Thanks )

Coke pays $715M to distribute Dr Pepper

June 7, 2010

ASSOCIATED PRESS
ATLANTA (AP) — The Coca-Cola Co. says it will distribute certain drinks made by Dr Pepper Snapple Group Inc. as part of a $715 million deal.

The agreement was announced Monday morning.


Under the terms of the deal, Coca-Cola will distribute Dr Pepper and Canada Dry ginger ale in the U.S. It will also distribute drinks in Canada. Dr Pepper Snapple gets a one-time $715 million payment from Coca-Cola.

The beverages have been distributed by Coca-Cola Enterprises Inc., which Coca-Cola is acquiring. Monday’s agreement replaces an established deal between Coca-Cola Enterprises and Dr Pepper.

The new agreement will last for 20 years and includes renewal options.

As part of the deal, Dr Pepper and Diet Dr Pepper will be included in Coke’s new freestyle fountain dispenser.
**********

Thoughts?
It will be nice to get a DP from a Free Style fountain.

Dewman1979
06-07-2010, 03:47 PM
I wonder if this will spur Pepsi to come up with a Dr. Pepper knock off?

24 Pepsi Max Flame Fan
06-07-2010, 04:14 PM
For Pibb drinkers, that kinda sucks that it will be "Kicked out" of the Freestyle.

mofizz
06-07-2010, 05:34 PM
I wonder if this will spur Pepsi to come up with a Dr. Pepper knock off?

Lord knows they need to. I suppose it's kind of hard though with so many Pepsi bottlers selling Dr. Pepper. They do represent about 38% of all DP volume.

The clear winner in both the PBG/PAS and CCE buyout is Dr. Pepper Snapple Group. They pretty much determine the share leader by being on either a Coke or Pepsi truck. Now they also get a stronger foothold in the foodservice channel. DPSG CEO Larry Young really has it together right now.

Mr Zabe
06-07-2010, 10:01 PM
I wonder if this will spur Pepsi to come up with a Dr. Pepper knock off? Just thinking maybe Dr Wham might get rolled out?

CitrusCola
06-07-2010, 10:29 PM
Dr. Wham is the closest thing to Dr Pepper that I've tasted, but doesn't it belong to Buffalo Rock Beverages?

Having Dr Pepper in the Freestyle probably means that the Freestyle probably won't have Pibb, and that's unfortunate.

I can't help but wonder what the long-term plans are at DPSG. The deals with Coke and Pepsi have given them a cash infusion and they'll get a good stream of money by selling the Dr Pepper concentrate. However, they will be depending on their top rivals to sell their top product. How do they plan to grow? Will they use some of that money to buy some of the smaller, independent bottlers and distributors that they depend on for their drinks? Are there any other possible acquisition targets for them?

Android
06-07-2010, 11:07 PM
What about bringing back Dr Slice - never tried it but...

popologist
06-08-2010, 12:39 AM
Why would Coke or Pepsi want to sell/distribute their competitors' products? Particularly when DP/Snapple has been gaining market share at the expense of , both, Coke and Pepsi...

fusion
06-08-2010, 01:02 AM
Interesting to note here is that the deal only includes Dr Pepper where CCE has it, as well as Canada Dry in the Northeast. Which means that Coke is relinquishing rights to Schweppes, which it sells in some major markets in the south; Squirt, which is a big seller for CCE out west; Cactus Cooler, which is a smaller brand mainly sold by Coke in a few select markets in the west as well; and Canada Dry in places like Ohio/western PA (not sure where else CCE has it).

The push for more DP fountain access in local accounts, as well as the freestyle are both big wins for DPS.

It will be interesting to see what becomes of Seagram's - since Coke owns the master distribution rights to the name for their ginger ales and mixers - I assume Coke will start producing it in places like Atlanta and Cincinnati, and will probably buy out the contracts of smaller distributors (I believe there is one in West Memphis, AR). I assume PBC is going to or already has dropped it in eastern OH.

And what of Fanta Grapefruit? Will Coke now push that in their soon to be former Squirt territories? There was some talk of CCE bringing back Ruby Red in some markets, I guess that's going to be scrapped.

Lastly, I would hope that DPS will push Cactus Cooler as more than just a marginal regional brand.

Tannerman
06-08-2010, 04:22 PM
It's interesting to see how this is playing out for DPSG. You do have to wonder about their long-term strategy. I don't know enough of the "politics" side to really offer an opinion, but from a perception standpoint, that organization has been doing a lot of what appears to be "good stuff" in the past few years.

greg
06-08-2010, 09:33 PM
Since December DPSG has inked a deal with Coke and Pepsi worth an estimated $1.65bb (Cash up front) over the next 20 years. That equates to $84.5 mm a year.
How much of that goes to shareholders I dont know, however, I can gauranteee you that DPSG has more than enough to make aquisitions, innovate and incubate.
They still have a decentt line to sell to add even more money to the till at the end of the year. DPSG knows it has one thing going for them and that is right in their name: Dr Pepper.
Sell the rights, not the brand and live off the money. DPSG, in my lifetime, will never be a #1 or #2 when it comes to colas, BUT, they seem to be #1 in strategy right now.

CitrusCola
06-08-2010, 10:27 PM
I guess they heard us:

UPDATE 2-Dr Pepper Snapple lays out growth plan, shares up | Reuters (http://www.reuters.com/article/idUSN0821337320100608)

They say they plan no acquisitions, no joint ventures, and no oversea expansion -- only "organic" growth in North America.

If that's what they plan to do, then they certainly need to find a way to grow their distribution channels.

greg
06-09-2010, 12:16 AM
I guess they heard us:

UPDATE 2-Dr Pepper Snapple lays out growth plan, shares up | Reuters (http://www.reuters.com/article/idUSN0821337320100608)

They say they plan no acquisitions, no joint ventures, and no oversea expansion -- only "organic" growth in North America.

If that's what they plan to do, then they certainly need to find a way to grow their distribution channels.

WOW.....Thats funny. Today at BevNet Live Vita Coco announced they just made a deal with DPSG to distribute for them in all 50 states!

Dewman1979
06-09-2010, 04:51 AM
I wonder is this means a wider release of sundrop.

CitrusCola
06-09-2010, 07:15 AM
The more I think about DPSG's distribution deals with Coke and Pepsi, the more sense it makes from a business perspective. With their top two rivals distributing their top product in different areas, that ensures that there will be no single product to compete with Dr Pepper nationwide. The closest thing out there is Pibb, and Coke won't distribute Pibb where they sell Dr Pepper.

After reading this article:

Coca-Cola, Dr Pepper Reach New Distribution Deal - WSJ.com (http://online.wsj.com/article/SB10001424052748703303904575292341015388912.html?m od=WSJ_Markets_section_Deals)

it sounds like DPSG wants to get their products into more fountain outlets. The fact that they're investing money in Coke's Freestyle is interesting. Are they trying to develop their own version of the Freestyle to sell DPSG drinks? How else could they get their drinks put into fountain outlets?

lordmadone
06-09-2010, 09:49 PM
I think Citrus hit it on the nose. Cut out any sense of competition..let your market rivals distribute your product...and essentially sit back and collect the revenue. In a tight market such as this DPSG is playing it safe and winning big..but not to say that coke or pepsi isn't making big off these deals as well..it just looks like with the raw dollars that DPSG is doing huge things but the problem being is that it will always settle for third..never striving to be #1 and IMHO with this strategy can never truly be #1. Red and Blue wouldn't allow it and I am sure coke and pepsi are smart enough to only give DPSG only enough rope to hang themselves with...however..corporations are all about money so where does that lead you?

Themaster73
06-09-2010, 10:53 PM
Coke is doing sugar with Dr Pepper, which could end up outselling their own brands (Coca Cola, Sprite, Fanta, etc) for a while in the summer, unless Coke is planning other surprises. It would be interesting to see Heritage Dr Pepper outsell HFCS Dr Pepper and many Coke brands in certain areas.

At least Pepsi had their sugar own products released with Heritage Dr Pepper.

I wonder if Dr Pepper bottlers (or other independent bottlers) will do their own version of Heritage or something with sugar (other than places in Texas and North Carolina which use sugar year round).

CitrusCola
06-10-2010, 07:22 AM
Lordmadone,

If DPSG's strategy is to just sit around and reap the rewards of having Coke and Pepsi distribute their flagship product, then you are right, they will always be running a distant third in the soft drink business.

Based on their performance so far, however, the folks in charge at DPSG seem to be pretty sharp when it comes to business. They must have some sort of plan to increase their market share. The article I linked to has been shortened and this part was cut out:

"Dr Pepper Snapple's biggest brands have sold well in bottles and cans but have lagged at soda fountains, controlled by Pepsi and Coke. "Fountain is one of the greatest ways to increase sampling of our brands," Greg Artkop told the newspaper. "

If DPSG is looking to grow by increasing the sales of the drinks that they do control the distribution of, then getting a share of the fountain outlet business is certainly the way to go. The big question is: how can they do that? Pepsi increased their presence at fountains by buying Pizza Hut, KFC, and Taco Bell and putting Pepsi fountains in all of them before selling off the fast food chains. DPSG probably can't afford to do something like that. If DPSG could come up with something like the Freestyle, on the other hand, they would take a huge step forward. DPSG has lots of different drinks, and many of them are only available in certain areas. A Freestyle-type fountain would allow them to offer almost all of their drinks at every fountain. Customers could then sample the "regional" drinks that they can't find in stores, and if one catches on, demand will be created and DPSG can step forward to meet that demand.

Time will tell.

fusion
06-10-2010, 11:32 AM
The large chain fountain market is pretty locked up - besides, the brands are pretty much set in stone in most of those stores. Not a whole lot of sampling going on there. Plus, not a whole lot of money being made, either. Lots of gallons to add to your case figures, but not a lot of dollars to add to the bottom line from these "legacy" accounts.

Also, most people buy a cola or diet cola with their food. DPS still isn't putting enough behind RC/Diet Rite, though the redesign and RC Cherry expansion are steps in the right direction.

The best that DPS can hope for is to jump on a chain that's about to hit it big, or concentrate mainly on local fountain accounts.

Another area where they seem to be lacking is vending machines, at least around here. Honickman (DPS dist) doesn't seem the least bit interested in them.

In regards to Sundrop, CCE doesn't distribute it, so DPS won't be getting back any territory rights from them. Distribution does seem to be slowly expanding outside of their core Southeast market, though.

There has always been concern that DPS could use Coke's/Pepsi's money (syrup sales to the bottlers) against them, but Dr Pepper is such a strong brand, I think the bottlers see it as too strong an asset to give up.

lordmadone
06-10-2010, 09:01 PM
Themaster: The wont happen ever...as sad as it is HFCS is the formulation favored right now..and sugar isn't a viable alternative to the majority of the loyalist drinkers. However there is a niche market which is growing..but it won't outsell or even get close to the regular formulated brands of coke classic or dr.pepper.

Fusion: Agreed. DPSG is such a small distributor and their main brands are all piggy backing onto strong established delivery systems of the red and blue..so unless DPSG gets out of that cycle..it will not gain proper leverage(if thats what it even wants). Dr.P is a solid brand but its other brands are lacking heavily..sunkist and maybe a&w are the only two other decently strong brands that have good consumer awareness and decent market share. However even with that said..look how they took away from their own major brand(sunkist) to give pepsi distribution rights to a very powerful brand that is on a solid growth(crush)? Granted..DP is getting a lot of money out of that..but at what cost?

CitrusCola
06-11-2010, 07:29 AM
Sampling does go on at fountains when unfamiliar choices are available. Just last week, I took the family to a fast-food restaurant that had a self-serve Coke fountain. One choice at that fountain was Strawberry Fanta, which caught the attention of the kids. All three tried it, and none of them liked it. We now know that if we see Fanta Strawberry in the grocery store, it's not something to buy for the kids.

If a fountain could be made that had all of the DPSG drinks as choices, some people would be curious and want to try drinks like Cactus Cooler, Canfield's Diet Chocolate Fudge Soda, Cherry-Lemon Sundrop, etc. It would not be a direct money-maker, but it would "enhance brand recognition" (as the marketing types like to say).

Mr Zabe
06-11-2010, 11:48 AM
Great point!

CCE Girlie
06-14-2010, 09:56 PM
I believe that Pibb will also be an option for Freestyle even though DP will be there. Consider this---we have both options right now for traditional BIB units. Remember that DP fountain rights are for all, not just Pepsi or CCE.
I am currently in Texas and we do not have the DP B/C rights but we still serve DP on fountain in some accounts and other account in the same area we have Pibb. Of course we would rather than Pibb because it is "our" brand, but we do have DP on some fountains considering we are in DP heartland.

mjb1124
06-14-2010, 09:58 PM
Isn't there a contract stipulation stating that Coke bottlers cannot sell Pibb anywhere that they sell Pepper? I would imagine this applies to fountains too.

24 Pepsi Max Flame Fan
06-15-2010, 11:15 AM
I forgot that a Chipotle right near me served Pibb Xtra. Nice.

Tripp
06-15-2010, 06:13 PM
Does this mean Pibb will be gone?

pibblover
06-15-2010, 07:25 PM
Hopefully this will not signal the end for Pibb. It would be ludicrous for Coca Cola to discontinue Pibb in favour of its poor-excuse cousin, Dr Pepper! Here is a quick summary of the situation, though:

The way the Coca-Cola company has been bottling and distributing Pibb is rather confusing. The way it's been for many years is that Coca-Cola will only bottle and distribute Pibb in regions where they were unable to secure a deal with Dr. Pepper. Dr. Pepper requires a 'No Competition' clause in their agreement with Coke which forbids Coke from producing Pibb in every region where they have an arrangement with Coke.

The Coca-Cola company would much rather offer Dr. Pepper instead of their own brand (Pibb) and will only produce Pibb in areas where Pepsi or 7UP has obtained the rights to offer Dr. Pepper. San Diego, Orange, Riverside, San Bernardino and Los Angeles Counties have all been 'Dr. Pepper only' territories because Coke owns the rights to distribute Dr. Pepper in those areas.

But in Kern County (Bakersfield) and also the Fresno area, Coke does not have the right to distribute Dr. Pepper (Pepsi has that agreement) and so they can offer Pibb in cans and bottles to compete. However in recent years Coke has chosen to scale back the production of Pibb in cans and bottles and it can now only be found in a few stores like Albertson's in Bakersfield. Vons no longer offers it.

The fountain drink dispensing machines in fast food places and restaurants are a different situation and have nothing to do with the bottling agreements that I mentioned. For many years Pibb was available at McDonalds but that is no longer the case. McDonalds decided they wanted Dr. Pepper and so they switched over about 6 months ago.

My guess is that Pibb might be completely phased out at some point because it just hasn't been a good seller for Coke. I hope that doesn't happen but it wouldn't surprise me if it did.

In the meantime, I have written to Coca Cola about this, and I am awaiting their response.

CitrusCola
06-15-2010, 08:26 PM
Hmm....

If DPSG were to start making their own fountains, would they be able to put Dr Pepper in them? Would they be able to compete with their own flagship product in areas where Coke or Pepsi distributes it?

Since they have the rights to all of the old Royal Crown Cola products, they could put Dr. Nehi in their fountains, I suppose.

fusion
06-16-2010, 02:59 AM
Pibb is a good seller for us in Maryland. Of course, it's not doing Dr Pepper numbers, but it holds its own. And when I was driving through parts of TN and KY, Pibb and Mello Yello were in every cooler in every store. I even saw it in 24 packs.

RunWithDaLilGuy
06-21-2010, 10:05 PM
Interesting to note here is that the deal only includes Dr Pepper where CCE has it, as well as Canada Dry in the Northeast. Which means that Coke is relinquishing rights to Schweppes, which it sells in some major markets in the south; Squirt, which is a big seller for CCE out west; Cactus Cooler, which is a smaller brand mainly sold by Coke in a few select markets in the west as well; and Canada Dry in places like Ohio/western PA (not sure where else CCE has it).

.

fusion - i had heard rumors awhile back when pepsi lost vernors in michigan that they were going to be getting schweppes from cce. cce michigan has schweppes across the whole state. down in detroit and up to flint, i believe, cce has dr pepper and squirt. will they keep both? or just dr pep?

RunWithDaLilGuy
06-21-2010, 10:09 PM
Sampling does go on at fountains when unfamiliar choices are available. Just last week, I took the family to a fast-food restaurant that had a self-serve Coke fountain. One choice at that fountain was Strawberry Fanta, which caught the attention of the kids. All three tried it, and none of them liked it. We now know that if we see Fanta Strawberry in the grocery store, it's not something to buy for the kids.

If a fountain could be made that had all of the DPSG drinks as choices, some people would be curious and want to try drinks like Cactus Cooler, Canfield's Diet Chocolate Fudge Soda, Cherry-Lemon Sundrop, etc. It would not be a direct money-maker, but it would "enhance brand recognition" (as the marketing types like to say).

interesting perception citruscola. im in the beer business. we always lead with on premise sampling first in bars etc... before off premise. when we launched stella artois years ago in michigan, we had it on draft for 90 days before having package. a bit extreme, but it worked. heineken light was available to us only in bar package bottles (24pk loose pack) for 45 days i believe before having it in 6pks and 12pks