Wells Fargo: ‘We’re increasingly concerned about the continued underperformance of Dr Pepper Snapple Group’s TEN platform’

22-Aug-2013 - Last updated on 23-Aug-2013 at 13:59 GMT

Bonnie Herzog: “While this platform does offer an alternative to traditional Diets, we fear the failure to sufficiently differentiate it from this struggling category is weighing on results.”

It was a dismal summer in the US soft drinks aisles, with dollar sales of diet/low calorie soda plunging 7.1% in the four weeks to August 3 vs the same period last year, while unit sales slumped 6.9%, according to new report from Wells Fargo.

Sales of PepsiCo’s low/zero cal offerings plummeted 9.4%, Coke’s low/zero cal wares slumped 5.8% and Dr Pepper Snapple (DPS) Group’s low/zero cal sales dropped 5.4%, according to Nielsen xAOC (extended All Outlet Coverage) data, which includes food, drug, mass merchandise, Walmart, dollar, military and club stores, but excludes c-stores.

The performance of DPS’s TEN calorie platform - which has recently been extended from Dr Pepper to 7UP, Sunkist, A&W, Canada Dry and RC Cola - was particularly dispiriting, said senior analyst Bonnie Herzog.

“DPS’s low calorie offerings posted its worst performance in over a year… The TEN platform appears to continue to underperform expectations, with DP10 posting its lowest dollar sales this period since the brand was launched, despite the fact that this is the peak summer selling season.”

While DPS Group CEO Larry Young said in late July that “early trial and repeat rates [of TEN - which contains a small amount of high fructose corn syrup plus high intensity sweeteners aspartame and ace K] are meeting our internal targets”, more recent sales data suggested things were not going according to plan, claimed Herzog.

We are becoming increasingly concerned about the continued underperformance of TEN

She added: “Although we conceptually believe in DPS’s TEN platform, we are becoming increasingly concerned about the continued underperformance of TEN.

“While this platform does offer an alternative to traditional Diets, we fear the failure to sufficiently differentiate it from this struggling category is weighing on results.”

We are disappointed to see weakness continue across virtually all categories.

soda-cans-kids=FNCE — Sales of carbonated soft drinks (excl energy drinks) were down 3.8% YoY in the four weeks to August 3, while unit sales were down 4.2%, according to Nielsen xAOC data

Regular carbonates (excluding energy drinks) fared slightly better, posting year-on-year sales declines of 2.2% over the same four-week period, with sales of PepsiCo products down 3.3% and sales of Coke products down 0.6%, reflecting an improvement in Coke’s performance, said Herzog.

“Coca-Cola was able to take share in both Regular and Diet carbonated soft drinks categories, an encouraging sign. However, in isotonics [Powerade], it posted -12.1% sales growth, the worst performance it has posted in this category in over a year.”

Red-Bull-cans — Red Bull sales were up 3.5% in the four-weeks to August 3 according to Nielsen xAOC data

Liquid tea - “a once bright spot in the beverage category”, notes Herzog - continued to struggle, posting sales declines of 2.9%, while frozen juice sales slumped 13.6%, shelf-stable juice fell 4.5% and refrigerated juice & drinks fell 0.3%.

Meanwhile, sales of energy drinks, once beverage category superstars, were flat (-0.2%) with growth from Red Bull and Coca-Cola offset by declines at Monster, RockStar, PepsiCo and DPS.

Gatorade sales up 5.3%

Gatorade-products — Gatorade was the silver lining to a cloudy and dull summer for soft drinks

And the good news?

Americans are drinking a lot of Gatorade, which posted an impressive 5.3% rise in dollar sales and a 7% increase in unit volumes, said Herzog.

But overall, things looked pretty grim, she concluded: “With better weather and gradual improvements to the economy, we are disappointed to see weakness continue across virtually all categories.”