Announcing its results for the year ending December 31 yesterday, DPS reported net sales up around 1.5% to $5.995bn, while net income rose circa. 3.7% to $629m.
But bottler (288oz) case sales by the firm and its bottlers fell 1% during 2012 – an a currency adjusted basis – while the firm case sales of concentrates and packaged drinks to bottlers, retailers and distributors fell 1% in Q4 and 2% overall during the year.
‘Step up to the plate and take a big swing…’
Young revealed yesterday that DPS plans to launch ten-calorie per 12oz (355ml) serving versions of 7UP, Sunkist, A&W, Canada Dry and RC Cola across the States in 2013 (backed by a $30m marketing kitty) to bring new and lapsed consumers back to carbonates via the firm’s “critical” TEN platform.
On a call yesterday to discuss DPS’ full-year 2012 results, Bryan Spillane from Bank of America Merrill Lynch, told Young: “Relative to Dr Pepper TEN, I think it’s a great idea given challenges that the industry is facing…especially the headwinds related to obesity.”
“You have to step up to the plate and take a big swing, so I think it’s a necessary action.”
Earlier in the call, Young had referred Judy Hong from Goldman Sachs to the Center for Science in the Public Interest (CSPIs) attack yesterday on sodas, where it linked HFCS and sugar use to obesity, diabetes and heart disease.
‘We’re not just going to sit back...’
Young said such attacks would persist and had encouraged the company to launch new low-calorie TEN products in 2 liter, 12-pack 20oz and 12oz packages.
“We’re not going to sit back and let it bring our volumes down and affect us. We’re behind this. The $30m will be across local, national radio…on the social networks,” Young said.
He added: “We’ll have a lot of outdoor, a lot of in home. We’re going to go after it aggressively, stay behind it, and it will phase pretty well through the year.”
TEN isn’t a ‘hard sell’ – Larry Young
Analyst Stephen Powers from Sanford Bernstein asked Young whether the TEN platform – with its numerous new SKUs in 2013 – would not add undue complexity to the DPS supply chain?
“You’ll probably have to displace a number of existing products on the store shelf. So how confident are you that TEN products will find support from independent bottlers and retailers?” Powers asked.
Young replied that consumers were demanding better-for-you products, and that results from test markets – involving a large convenience and a large grocery chain – showed that 91% of TEN sales were incremental to (i.e. adding to existing sales in) the CSD category.
“When you take numbers like this back out to your bottling partners and our guys in the field and other customers, it’s not that hard a sale,” Young said, adding that feedback from major retailers signalled their excitement at TEN.