Cadbury approves beverage spinoff. What will it mean?

, Staff Writer

The Doctor is in.

If there’s anything that the last century of soft drinks has taught us, it’s that chocolate and soda don’t mix. Investors at Cadbury-Schweppes may have had that lesson in mind when they decided overwhelmingly that it was time to sever their beverage business from its chocolate-centered parent company. What that vote will mean for the beverage company and the industry as a whole, though, is up for debate.

Industry Analyst Manny Goldman said he thinks the vote will bring little more than a name change to the soon-to-be Dr Pepper Snapple Group, but George Kalil, President of one of Cadbury’s largest U.S. bottlers, hopes that the restructuring will mean more.

 “If it goes through in the fashion it’s supposed to go through then I think that it could be very good for everybody,” Kalil said, “for the employees and the network.”

Kalil said that high-level decisions would have to be easier when top officers can organize meetings simply by yelling down the hall of their Plano, Tex. headquarters. Currently, he said, American brass has to bring ideas to their London bosses before making any changes. That creates logistical snags, as nearly 5,000 miles, six time zones and the Atlantic Ocean separate Plano from London.

Removing those snags, Kalil said, will allow the company to more nimbly adopt new ideas, and removing the foreign ownership could buoy the morale of associated independent bottlers.

Kalil’s family has been running the Kalil Bottling Company for 60 years, and Kalil said bottlers felt more invested in the company before Cadbury Schweppes PLC and the Carlyle Group bought Dr Pepper/Seven Up in 1995.

“We all felt like we owned part of it,” Kalil said. “That’s not easy to do when you’re part of a foreign owned company.”

He said he hopes the company will take a giant cultural step back before it moves forward, and he thinks Larry Young, who will be the DPSG’s chief executive officer, is the right man for the job.

Goldman agreed that Young – who has served as the CEO of the Dr Pepper/Seven Up Bottling Group since 2005 – represents a good choice to lead the beverage company, but that’s about the only point where Goldman and Kalil agreed.

Goldman said he goes back with Cadbury “a long way,” and he believes the spinoff won’t change how the company operates. Despite its corporate ties to London, Goldman said, the division has effectively functioned as an independent company.

“The confection business and the drinks business are really separate animals,” Goldman said. ‘Just the nature of the business is different.”

Goldman said the two divisions usually didn’t even share finances, but that didn’t mean that the two businesses didn’t have things in common.

Both companies, Goldman said, compete as “leaner and meaner” competitors in fields dominated by a handful of giants. Cadbury wrestles with Hershey and Nestle, and Dr Pepper battles for shelf space against Coke and Pepsi.

While that may be true, Cadbury took pains streamline their drinks division before spinning it off.

Between 2003 and 2005, Cadbury integrated Dr Pepper/Seven Up, Mott’s and Snapple into one organization. Between 2006 and 2007, they bought total control of the Dr Pepper/Seven Up Bottling Group and purchased other third-party bottlers, and, last year, Cadbury cut 470 U.S. drinks division jobs ahead of the upcoming demerger.

The resulting company will command the power of a long list of beverage brands including A&W Root Beer, Canda Dry Ginger Ale, Sunkist, and Hawaiian Punch.

Goldman said the management team in place has done a fine job of corralling those disparate brands, and believes they’ll probably perform at least as well when spun-off. Kalil said he expects the company to experience a period of adjustment, and hopes they will emerge as a better company.

Only the coming months can determine which of those predictions cuts closer to the truth. In the mean time, follow Cadbury’s lead and keep your chocolate out of your soda.