Bai Acquisition Still Settling for DPSG

Dr Pepper Snapple Group (DPSG) is still working to settle the rocking boat of its high-profile Bai acquisition, as investments in the antioxidant-infused beverage brand weigh on the company’s expense report for Q2.

DPSG spent $40 million in expenses for Bai during the spring, the company reported, half of which went toward marketing. An additional $49 million spent toward repaying debt contributed to the company’s 28 percent earnings drop.

Marketing for Bai has largely focused on driving trial, which continues to produce low-double-digit repeat purchases on the main brand, and mid-single-digit repeat purchases on the brand’s Bubbles sub-line, according to the report. DPSG previously reported it would seek to spend an additional $100 million on marketing during FY 2017 — $20 million on its core soda brands and $80 million on Bai alone. However, the company has already spent $16 million on its other brands, prompting investors on Thursday’s call to question how the company would proceed during the second half of the year.

“[DPSG will spend] probably a little less on marketing but more in trade, and that should be somewhat expected if you think about what we’re trying to do short term to drive trial,” said CFO Marty Ellen.

Part of the trial-driving initiative has included pushing promotions, such as a three-for-$5 deal in large-format stores and two-for-$4 deals in the convenience channel, Ellen said.

DPSG CEO Larry Young also defended the decision to appoint Lain Hancock as Bai CEO, following the sudden departure of Bai founder Ben Weiss last month. Hancock, who joined DPSG in 2007 and previously served as senior vice president of human resources, seemed like a surprise pick to some investors given his relative lack of general management experience.

“We spend a lot of time here on how we develop leaders for the future and we put them in a lot of different roles,” Young said. “I can tell you he’s doing a great job, but I think the people there [at Bai] will tell you he’s done a great job.”

Young also thanked Weiss for his contributions to Bai and praised him for his work building the brand, however noted that many at DPSG had expected “it may be tough for him being at a public company.”

Bottler case sales volume of Bai increased 118 percent over the quarter and showed solid year-over-year volume growth across channels, including 41 percent in food, 53 percent in convenience, 37 percent in club, and 72 percent at Walmart.

DPSG’s CSD portfolio saw 3 percent volume growth while its non-carbonated beverages, including Bai, were up 5 percent. Sales within DPSG’s allied brand portfolio, which includes, BodyArmor, Vita Coco, High Brew Coffee and Core, grew by 45 percent.