Mid-Calorie Sodas Give Dr Pepper And Pepsi A Jolt Of Life
With consumers ditching traditional soft drinks for healthier alternatives such as juices, ready to drink teas and coffees, soft drink companies such as Dr Pepper Snapple (NYSE:DPS) and PepsiCo (NYSE:PEP) are taking their mid-calorie variants more seriously than ever to boost flagging soft drink sales. The soft drink consumption has been continuously decreasing for the past seven years according to Beverage Digest. [1] According to PepsiCo CEO Infra Nooyi, sales of its recently launched Pepsi Next exceeded expectations. Similarly, Dr Pepper Snapple’s Dr Pepper TEN helped the company post volume growth in its recently released quarterly data.
We estimate a $38.61 price for Dr Pepper Snapple, which is about 5% below the market price.
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Harbinger of Things to Come ?
The fact that beverage companies have been trying to make their portfolios healthier is nothing new, but the initial success of these two soft drinks (i.e. Pepsi Next and Dr Pepper TEN) suggests that beverage companies could have been able to respond to changing consumer needs and image their products which are perceived in a positive way.
Last month, Dr Pepper Snapple announced its Q1 results which were buoyed by a 2% volume growth in soft drinks which is quite impressive given that the overall soft drink volume is declining in the U.S. Soft drink volume growth was helped by the launch of its mid-calorie beverage Dr Pepper TEN in the last quarter of 2011. As the name suggests, the beverage contains only ten calories.
Given the generally positive reception the company has received for the beverage, it plans to introduce other TEN products nationally. According to Dr Pepper Snapple’s CEO Larry Young, the company is running the test products in four or five different markets.
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