Dr Pepper sees more than cash from Coke

CHICAGO Tue Mar 16, 2010 8:43am EDT

Dr Pepper Snapple CEO Larry Young speaks during the Reuters Food and Agriculture Summit in Chicago March 15, 2010. REUTERS/John Gress

Dr Pepper Snapple CEO Larry Young speaks during the Reuters Food and Agriculture Summit in Chicago March 15, 2010.

Credit: Reuters/John Gress

CHICAGO (Reuters) - Dr Pepper Snapple Group Inc (DPS.N) said cash was not the only consideration when negotiating with Coca-Cola Co (KO.N) for distributing its drinks after Coke consolidates its bottling system.

PepsiCo (PEP.N) paid Dr Pepper $900 million for the right to continue distributing its soft drinks, a consequence of Pepsi buying its two largest bottlers who held those rights.

Wall Street is looking for a similar-sized payout from Coke, which said last month it would buy the North American operations of its largest bottler, Coca-Cola Enterprises (CCE.N), another bottler of Dr Pepper Snapple drinks.

Wall Street is looking for a similar-sized payout from Coke, which said last month it would buy the North American operations of its largest bottler, Coca-Cola Enterprises Dr Pepper Snapple Chief Executive Larry Young, speaking on Monday at the Reuters Food and Agriculture Summit in Chicago, said it was still too early to comment on specifics of the talks with Coca-Cola, but said he would approach a decision the same way he did with PepsiCo.

"Value is not always dollars. There's lots of ways to look at value," Young said. He noted that renegotiating with Coca-Cola gave Dr Pepper Snapple a "once-in-a-lifetime opportunity to clean up" some of its regional distribution.

Young also said that Coke CEO Muhtar Kent was "a very good communicator" and was "fantastic at keeping us in the loop".

Young expects his company will outperform the overall U.S. carbonated soft drink industry this year, helped by Dr Pepper's dominance in the growing market for flavored beverages.

Young predicted that the U.S. carbonated drinks industry would be flat to down 1 percent, while flavored drinks, which include its own Dr Pepper, 7UP and Sunkist, should be flat to slightly up.

"We expect to outperform the market this year and see our market share improving," Young said.

Compared with rivals Coke and Pepsi, which have strong cola brands, Dr Pepper is heavily weighted toward flavored soft drinks.

Young disagreed with the notion of a "new normal" in spending on soft drinks, forecasting that consumers will return to splurging as the economy recovers.

"When the economy goes soft, tap water tastes pretty good," Young said. "We're a resilient industry."

(Additional reporting by Phil Wahba and David Jones, editing by Gerald E. McCormick)

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