‘They all want the next Glaceau deal!’ Dr Pepper’s Larry Young loves young entrepreneurs but finds them expensive

Anna Rubaylova/Flickr

Dr Pepper Snapple CEO Larry Young says he loves the young entrepreneurs who run his allied brands – these include Bai 5 and Vita Coco – but says the buyout prices startups demand are ‘ridiculous’.

Quarterly net sales rose % year-on-year to $1.631bn while net income rose % to $210m, but despite Young’s mention of “strong results in a tough environment”, Wells Fargo Securities said yesterday it was concerned by DPS’s positioning and outlook in a challenged US CSD market.

Analysts warn of significant CSD over-exposure

Warning that DPS held “significant over-exposure” in CSDs, the brokerage warned that the firm is losing share in a declining industry (heaping pressure on the top line), and faces margin pressures due to higher fixed costs.

Given what Wells Fargo sees as a stuttering TEN calorie platform, a lack of “any other near-term catalysts to drive top-line growth”, its analysts say DPS cannot rely on ongoing cost-cutting initiatives in the next few years.

Chatting with analysts about DPS’s performance over Q2, CFO Martin Ellen said that DPS’s packaged beverage sales (excluding concentrates) benefited from strong growth for allied brands such as Vita Coco and Bai 5 (Bai Drinks founder Ben Weiss is pictured left).

Ellen said DPS earns a lower gross margin on these products, which it buys as finished goods, despite a good per case profit, adding that they account for around 3% of sales volumes.

“They’re really important to us and they’re growing. And strategically, it speaks to our ability to either seek out or have others seek us out – entrepreneurs who create these products that will probably end up creating this product somewhat better than larger companies would, not that we can’t,” he said.

DPS had the opportunity to get involved with these brands by offering them access to its distribution network, Ellen said, name-checking coffee-fruit brand Bai 5, Vita Coco and Fruit2O zero-calorie waters.

“One of our strengths and advantages is offering up our DSD system to take advantage of growing categories and growing products that are created by these partners. And it is a very good business for us,” he added.

Larry Young hasn't 'changed his tune' on acquisitions

In light of the allied brands’ success, and interestingly, given Wells Fargo’s view on the lack of growth catalysts for DPS, William Schmitz, Deutsche Bank, asked Young he’d “changed your tune” on acquisitions.

“You talked about some of these great allied brands that you love the growth profile, you love the revenue per case, and obviously, the balance sheet is fairly under-levered right now,” Schmitz said.

“So have you changed your view on doing deals?” he added.

Young replied that DPS remained committed to being shareholder-friendly, and insisted the firm would not overpay for anything.

“Some of these multiples that are out there are ridiculous. And I love these young entrepreneurs, but they all want to have the next Glaceau deal [the brand cost Coke $4.1bn in 2007]. And we’ll be very prudent in what we do with them,” he said.

“We’re very happy being a distributor and can also pick up some equity stakes in them, and we’ll continue to do that going forward,” Young added.

The DPS boss also spoke of ongoing trials offering lower-calorie CSDs to consumers looking for alternatives to artificial sweeteners – sodas with real sugar and stevia, with 60 calories/12oz (340ml) can.

Dr Pepper brand sales fell 1% in the quarter – an improvement on Q1 when it fell 4% – but it continues to lag other DPS soda brands. “Our issue…is diet. Diet has taken us down.” Young said.

Related News

Bai Brands goes sparkling with Bai Bubbles, warns CSDs are ‘dying’

Bai Brands goes sparkling with Bai Bubbles, warns CSDs ‘dying on the vine’

Bai Brands CEO: ‘Sales will hit $50m in 2014, $100m in 2015'

Bai Brands CEO: ‘Sales will hit $50m in 2014, but there were ‘unsexy’ years’

‘I’m a Bai-liever!’ Dr Pepper backed brand Bai 5 scores $20m sales

‘I’m a Bai-liever!’ Dr Pepper backed brand Bai 5 scores $20m sales

Dr Pepper TEN…A dead duck? Analyst warns of ‘continued deceleration’

Dr Pepper TEN…A dead duck? Analyst warns of ‘continued deceleration’

Related Products

See more related products

Comments (2)

A formulator willing to help - 18 Sep 2014 | 10:57

Compete with Gatorade/Powerade DPS

I know it's a tall order but that is where and how they started. I've got the formulation. If interested, we can talk.

18-Sep-2014 at 22:57 GMT

An entrepeneur watching on. - 28 Jul 2014 | 05:03

Live in reality Dr. Pepper

Get real Young....ur not Coke and will never get the best deals. You will bottom feed for number 3 and 4 deals...and pay what u think is an ok price for some cash flow....maybe Coke does over pay from time to time...but when u take home a Gatorade it's worth every penny. Stop dissing entrepreneurs and diss yourself...

28-Jul-2014 at 05:03 GMT

Submit a comment

Your comment has been saved

Post a comment

Please note that any information that you supply is protected by our Privacy and Cookie Policy. Access to all documents and request for further information are available to all users at no costs, In order to provide you with this free service, William Reed Business Media SAS does share your information with companies that have content on this site. When you access a document or request further information from this site, your information maybe shared with the owners of that document or information.