Dr. Pepper Snapple Merger With Keurig – Impact on the Beverage Aisle

The merger of Dr. Pepper Snapple Group with Keurig Green Mountain, which was initially announced in January, was finalized recently. The deal creates the new publicly traded company known as Keurig Dr. Pepper, according to Bev Net is the 3rd largest beverage company in North America.

The merger is going to have a direct impact on the beverage aisle because the combined entity will be utilizing their respective strengths together to create unique delivery systems for the consumer in the future.

The beverage industry is another sector of the economy which is in a “grow or die” phase at this point. In my professional experience in the industry as well as my time covering mergers and acquisitions, the key factor in this segment of business is the distribution network.

That is the main determining factor behind why Coca-Cola and Pepsi dominate the beverage aisle at the grocery store: it is all driven by distribution and shelf space. The smaller brands have a very difficult time competing with the big players in this space because of the costs associated with distributing the product and gaining shelf space for the product.

The executives at the former Dr. Pepper Snapple Group were faced with having to grow in order to compete with the top two players in the industry. The deal with Keurig allows them to do precisely that, it grows their business and their market share.

The deal also includes Allied Brands which is a distribution network that will now be run by the combined Keurig Dr. Pepper which features 125 different brands. This collection of brands are a mix of beverage offerings that are either wholly owned, partially owned, or not owned at all by Keurig Dr. Pepper.

The news over the past five days is about which brands will be dropping out of the new Allied Brands distribution situation. The ripple effect left by these changes will have a definite impact on the beverage industry. Some brands will be promoted on a regional basis in a more visible way.

Conversely, some brands most notably Fiji bottled water will be leaving Allied Brands, according to CNBC, in order to start their own distribution network. The result of these changes will most certainly have a price impact on the consumer, especially if the new or spin-off brands from the Allied distribution network fold into smaller distribution agreements.

The combined strengths of Keurig Dr. Pepper could translate into lower prices or more advantageous bulk sale pricing for the consumer, but that remains to be seen. The single serve delivery system technology that Keurig has mastered could translate into some new concepts that integrate the Snapple iced tea beverage line or create some new innovations on the delivery of Dr. Pepper and its signature flavor.

The merger also helps both entities compete in a grocery channel that is being shaped by Wal-Mart and Amazon/Whole Foods. The persistent pursuit of low prices by Wal-Mart which they require of their suppliers can put the squeeze on profit margins. The combined Keurig Dr. Pepper now has the distribution and production capabilities to compete in a profitable way against the forces of Wal-Mart and Amazon.

It is in this perspective where the consumer will see enhanced value on their favorite soft drinks whether it is Dr. Pepper, 7UP, A&W Root Beer, or Snapple. The distribution of Keurig and their famous pods of all types and varieties and the Green Mountain Coffee products will all see a significant increase into the grocery channel. In addition, perhaps the drug store channel as well given the relationships that Dr. Pepper/Snapple/Allied Brands have developed over decades of time.

The other consideration here is that the combined Keurig Dr. Pepper company can now be an active player in acquisitions which will alter the landscape of the beverage industry. The combined publicly traded entity could target consolidations within the beverage industry, or could seek to enhance their delivery systems or packaging with a purchase of a smaller player in those industry sub-classes.

Keurig Dr. Pepper has a significant positive component working for them in the future: they have a very loyal base of consumers. The consumers in various survey data have identified as “fans” of Keurig and “fans” of Dr. Pepper. The new leadership team of the combined company will utilize new technologies through social media to build deeper relationships with those loyal consumers with cross-branding opportunities to grow revenue further.

The newly combined company features brands that are iconic in America: Dr. Pepper, Snapple, A&W, 7UP, and Sunkist. These brands have multiple products merchandised around them from tee shirts, cups, keychains, and more. They have an identity of their own and this merger promises that these brands will be relevant for a long time to come.

Keurig Dr. Pepper is the largest beverage merger in history and it will dynamically shape the future for the beverage aisle and provide new innovations to the delivery of beverages in an increasingly fast paced way of life for the consumer.

(some background information and industry data courtesy of Bev Net and CNBC)

Fired Up: Pepsi To Launch Cinnamon Pepsi Fire Concept

PepsiCo, the parent company of Pepsi, announced on Thursday the newest line extension concept for the cola giant. The summer launch will feature a cinnamon flavored Pepsi product called “Pepsi Fire”. It will be available in both cans and bottles starting on May 22nd and running for an eight week period through mid-July.

The limited edition soft drink will be a part of a summer promotional campaign across the entire Pepsi lineup that will give away prizes called “Snap-Unlock-Win” which will integrate the promotional giveaways through the popular social media platform, SnapChat.

The summer cinnamon flavored “Pepsi Fire” will also be integrated into the 7-Eleven convenience store chain’s Slurpee lineup which the executives at Pepsi are touting as a drink experience that will be both hot and cold. The Slurpee and summer time are ubiquitous, and Pepsi is banking on the popularity of that frozen drink delivery system to create further buzz around the Fire product.

The product reviews I read have described the beverage as Pepsi meets Hot Tamales, those artificial cinnamon candies, and that the Slurpee was very spicy. I am sure it will appeal to some consumers, especially those who have an affinity for all things cinnamon.

In recent years, Pepsi has had varying levels of success with limited edition products. They have relaunched several product variations recently with real sugar added to the formula to offset the public perception regarding high fructose corn syrup and artificial sweeteners. The brand has also focused their efforts on a few different tweaks around the Cherry Vanilla Pepsi concept, most recently with a limited run around Valentine’s Day in 2016.
The summer line extensions have had success at times on a regional basis, the Pepsi Summer Mix concept with all the mixed fruit flavors included with the mainstream cola flavor was very successful in the northeast United States back in 2007. I remember purchasing that beverage when I travelled for my job at that time throughout the region.

PepsiCo also agreed to join an initiative with the Partnership for a Healthy America, where across all their brand lines they have agreed to limit the amount of calories, sodium, and sugars contained within many different products. PepsiCo has 22 brands that produce more than $1 billion or more in sales per year, so this represents a major contribution toward healthier snack options for the American consumer.

The company will also be reviewing their formulations to determine methods to incorporate more protein into their brand portfolio. They will also look at moving toward more non-GMO containing ingredients for their huge stable of product offerings, according to trade industry reports. This is not surprising news given the trend lines of both of those areas within the current consumer environment.

The inclusion of protein is a hot button trend within the current consumer climate with people leading more active as well as very busy “eat and run” lifestyles. The non-GMO trend has been steadily more relevant with the average American consumer and is a topic I have written about extensively in the past. The consumer interest in GMO containing ingredients is significant, and the major players in the industry are taking notice.

The seasonal launch concept is nothing new in the beverage industry, and it is a way that brands can rejuvenate interest as well as maximize sales. The limited nature of the product concept usually creates a sense of urgency for the consumer. The summer season is one of obvious increased sales of carbonated soft drinks. This new concept should be interesting for sure. The inclusion of social media into the promotional contest portion is also an interesting aspect of this launch.

The utilization of social media could well represent the future of the promotional campaigns that brands will roll out to engage consumers on a more personalized level. That could either represent a great innovation or be a complete disaster which will remain to be seen. The beverage industry is poised now to enter the summer season which should give us all hope that the long sunny days are waiting just around the corner.