The Breeze With Beverage Digest
The Breeze With Beverage Digest
Episode 21: Unpacking Dr Pepper's Journey from Regional Obsession to National Star
Today, Beverage Digest Editor & Publisher Duane Stanford and industry expert & regular podcast contributor John Sicher discuss the remarkable journey of Dr Pepper – a brand that has thrived in today's demanding carbonated soft drink landscape. Through strategic marketing, innovation, and understanding consumer trends, Dr Pepper has positioned itself as a key player in the category. Duane and John offer insights into the brand's growth amid declining CSD volumes, discuss the importance of bottler relationships and KDP's distribution strategy, and explore the brand's effective use of limited-time offerings and social media trends.
This is the Breeze with Beverage Digest. I'm your host, dwayne Stanford, the editor and publisher of Beverage Digest. The Breeze is where we bring you into the kinds of industry conversations we have every day at Beverage Digest. We dissect what's happening, connect the dots and ask the most important question what does this mean? I'm joined by my podcast collaborator, john Sitcher, a former editor and publisher of Beverage Digest, who has since consulted for companies including Coca-Cola, body Armor and sweetener company Pure Circle. John how are you?
Speaker 2:I'm fine, Dwayne, but it would have been better if the Chiefs had won. I had to pay you the $10 that we discussed. Congratulations on your Eagles.
Speaker 1:Yeah, that was man. What a surprise outcome that was. I'm not sure I would have guessed that. We kind of have a friendly bet every year for fun. I'm not sure we both have real strong dogs in the fight, but hey, that was quite interesting, wasn't it.
Speaker 2:It was fascinating. I mean it was especially during the first half. I was just sat there in shock watching the Chiefs just not be able to get it together. But you know, that's football.
Speaker 1:You know I thinking uh in the nfl many times you'll have one half one way and the other half is completely different. You know, andy reed make adjustments. I was like I am not counting them out and it just never materialized. You know, I just did a a story in beverage digest last week where we were looking at uh the drink, throne sport coffee and uh, patrick mahomes is a major investor in that brand, the second largest investor, and you know. So I was kind of watching with interest too to see if he would get the three-peat. But either way, that brand is really getting some, has some interesting attention to ride in the last couple weeks, so that's been pretty interesting too.
Speaker 2:I think he could have used a little bit more of that of his product before the game this year.
Speaker 1:Yeah, yeah, or the protection at least. Yeah, exactly, ok, so that's ready to drink coffee. But of course, you know, during this Super Bowl we did see some ads from carbonated soft drink companies. We saw Mountain Dew with an ad with Seal, coca-cola had an ad, sort of playing around with AI around the Super Bowl here.
Speaker 1:This category is one that, john, you and I have talked about in the prospects for the category for a long time, and in fact it's been almost a two-decade-long conversation between us about what are the prospects for carbonated soft drinks long-term in the US market. Now, there have been times during that long, long discussion when CSDs were all but counted out as a growth engine, and over the years CSDs have been embattled by questions over sugar, questions over artificial sweeteners, even questions over plastic waste from packaging, and of course you've got this perennial question about whether big soft drink companies are doing enough to recruit new generations of drinkers in what has become a really hyper fragmented consumer market, unlike what we saw with the Super Bowl, which is still one of the very few times when you see, you know, sort of a mass marketing opportunity. Now, through all of those sorts of risks, over the years, the category has remained pretty resilient and it's true that the carbonated soft drink category doesn't grow at the same rate as some sexier categories like energy drinks or even newer segments like gut sodas. But, as I always like to point out, csds are a massive $80 billion category in the US and they are quite profitable. They can also grow.
Speaker 1:Just this week, coke reported growth in trademark Coca-Cola globally and in the US, and the fact is, people still love bubbles when they are relevant. Case in point through all of the ups and downs for CSDs, one soft drink brand has turned itself into a juggernaut, and that is Dr Pepper. Just last year, we reported from our data that regular Dr Pepper had just barely eclipsed regular Pepsi-Cola to become the number two soda in. It was a remarkable feat by Dr Pepper. That was decades in the making and that's what we want to dive into today on the podcast. John, you've been digging through Beverage Digest fact book data and you've called out a stat that I think paints the picture quite well. Share that with us.
Speaker 2:Let me give you two stats. Okay, From 2000, the beginning of this of my measuring period, to 2023, CSDs in volume have declined 25%. Trademark Coke is down about 22%. Trademark Pepsi is down about 51 percent. But guess what? Trademark Dr Pepper over those years is up 14 percent and we'll get into the reasons for that. As you said, One more little stat Back in 2003, in the Beverage Digest fact book data brand Dr Pepper was ranked number seven with a 5.7 share. And guess what, Fast forward to your data last year, it moved from a seven ranking to a number two ranking just behind Coke with an 8.3 share. So, as you said, Dr Pepper has been a juggernaut. It's a real success story. Dr Pepper has been a juggernaut. It's a real success story and the reasons are multifold and it would be really fun to dig into those.
Speaker 1:Yeah, so John, all right. So, look, you've been covering this brand for a long time. You know back in your days of running Beverage Digest, you know the early days, the early 90s, into the 2000s. What back then did you think about when you thought about the Dr Pepper brand? How was it positioned in your mind? What were you thinking about it long term? Just take us kind of back to there and how people and how the industry kind of looked at that brand then.
Speaker 2:Look, I think that there are a number of factors. Number one is that Keurig Dr Pepper today, and its predecessor companies like Dr Pepper Snapple and Dr Pepper 7-Up, have always been very CSD intensive. And if you look at the fact book data, nearly all of KDP's volumes and CSDs CSDs make up less than half of PepsiCo's data and probably about two-thirds of Coke's data half of PepsiCo's data and probably about two-thirds of Coke's data. So Keurig Dr Pepper and his predecessors, they were really a CSD company in terms of their own brands and they still are today. So they knew from many years ago they needed to be good at focusing on and marketing CSDs and of course, their big flagship brand is Dr Pepper. They also did something else very, very well and that is bottler relations.
Speaker 2:I remember going to Dr Pepper bottler meetings where there were a ton of Coke and Pepsi bottlers there the Dr Pepper company, let's just call them that. Although they had various corporate names, the Dr Pepper Company and its executives always treated their bottlers as customers. They wooed them, they honored them, they feted them, and I think it made a huge difference. And the third thing is that remember most of the Dr Pepper volume is handled by Coke and Pepsi bottlers, but in no market does a Coke bottler and a Pepsi bottler have Dr Pepper. So where a Coke bottler has Dr Pepper, the Pepsi bottler doesn't.
Speaker 2:And for years and years and years, dr Pepper made the following case very strongly to Coke and Pepsi bottlers and it was this when you have Dr Pepper on a display, basically Dr Pepper will help draw customers to your display and you'll sell more of your cola and other brands. And they proved that year after year after year and it was very effective. And, dwayne, I just think they've been very, very good and skilled and focused for many years at marketing and selling Dr Pepper. They've also had a very good fountain operation. They've built that over the years. So you know Coke leads the fountain business, but Dr Pepper has a huge fountain presence in the US. Hats off to them. And the results show.
Speaker 1:And you know, when you talk about the fact that they would pitch Coke and Pepsi bottlers on the fact that if you had Dr Pepper, it would draw attention for your other brands as well, are you saying that typically what that meant was that consumers would come in and if they picked up Dr Pepper, it was an and situation for them where they'd also grab some of those other brands as well, or what was going on with that?
Speaker 2:What they said was if you have Dr Pepper on display, more people are going to come to your display and they're going to buy your own company's products In the case of Coke, coke and Sprite, the case of Pepsi, pepsi and Mountain Dew. And year after year after year they made that pitch to the Coke and Pepsi bottlers, who probably handle about 80% of the Dr Pepper volume. And the Coke and Pepsi bottlers were always very, very enthusiastic about their Dr Pepper. In fact, many years ago, coke and Pepsi bothers who had Dr Pepper called their Dr Pepper business golden cases Because those were incremental business, profitable business.
Speaker 2:And remember there never was much of a competitor for Dr Pepper. Coke has Pibb. It used to be called Mr Pibb. It's a very small brand. It has some presence in the market. I don't know whether how many of your podcast listeners, dwayne, will remember a brand called Mr Green. I think it started out as Dr Green. That was Pepsi's attempted response to have a company-owned competitor for Dr Pepper in markets where their bottlers didn't have it. You know Pibb still is around. I'm not aware that Pepsi has any real spicy, cherry or pepper-flavored competitor for Dr Pepper right now. Pepper's been a juggernaut as you said.
Speaker 1:Yeah, you know, and that was back in the days too when CSDs were a much bigger share of stomach Dr Pepper, you know households probably had more CSDs and that would have been a time then where pepper was kind of a different kind of play. So if you were going to the CSD aisle and you wanted to buy CSDs and you were a pretty heavy using household, then hey, if you're grabbing some Dr Pepper, you might just grab a Mountain Dew too, because your kids kind of like the Mountain Dew. Or you might grab some Pepsi as well because somebody else in your family has this and that. I wonder if I would think that that's probably that connection to selling the other brands. I wonder if that still holds as true today, when you have a much more fragmented market.
Speaker 2:One other thing they did is that they made the case year after year after year that Diet Dr Pepper tasted more like regular Dr Pepper than other diets tasted like their regular counterparts. And though brand Dr Pepper is now the number two brand and grew nicely, diet Dr Pepper has done very well too, and you know again, they were for many, many, many years. They've been very smart and very focused about how they positioned and how they marketed and sold that brand. And you know it's been a phenomenon. And, as you said, you know, as we've seen volume go down, per capita consumption go down. Yes, there's been some growth in dollars because of pricing, but you know volume is down 25% from where it was in the year 2000. Dr Pepper's grown. So what does that say? It says that we really can't count out CSDs. But to grow a CSD brand, to grow its volume, you've got to be smart about how you do it. And the Dr Pepper company and its various iterations has been, has been, very smart about how they've handled that brand.
Speaker 1:Yeah, I mean, to be fair, the share gap between, you know, coca-cola for sure, and even PepsiCo, you know, is pretty wide. So, you know, over those decades they had a good bit of runway if they did the right things to grow that brand. And you know, because it was such a heavy regional brand, it was, you know, heavy in the Southwest and the South, et cetera, southwest and the South, et cetera. Over the years they've really, you know, pushed it into the rest of the country and taken advantage of flavor trends, taken advantage of demographic trends, and so, you know, it was there for the taking, especially in a fragmented, you know, consumer environment and then, as social media has come on in recent years, even more fragmentation of media and an opportunity for them to grab young consumers. I mean, they had share for the taking, to be fair, as long as they figured out the right ways to do that.
Speaker 2:I think you're right and that goes back to some very good decisions that they made in the early days of the expansion of Dr Pepper. There was a guy named Foots Clements who ran Dr Pepper many, many years ago. A very smart guy. He was semi-retired when I started Beverage Digest in 1995, but I got to know him a little bit and they had a very clear strategy. They decided that I mean, dr Pepper was originally a regional brand in the Southwest, it started in Texas and they decided they wanted to take it national. And their franchising strategy was very simple they wanted the best bottler in any market and they basically franchised Coke and Pepsi bottlers all over the country and they had an excellent bottler in Texas named Jim Turner.
Speaker 2:And so a lot of their growth has been as I think you explicitly or implicitly said, dwayne from expansion, in other words expansion from being a Southwest brand to a national brand. But they've also grown in their legacy markets and they've just done a good job. And I think Dr Pepper is a taste that people like or they don't like, but fortunately for them, more people like it. There are markets where it's very strong and there are markets where it's not so strong. You don't see a lot of Dr Pepper in stores and coolers in New York City, but you go to other parts of the country and you know it dominates the coolers and shelves and you know, as I said, they've just been smart about how they've done it.
Speaker 1:I think one of the really interesting things too that they've done in recent years is very much lean into the trends around flavors, and you've seen them with their line extensions, like the Creamy Coconut. These have been very successful. They've been smart about linking those with social media trends and beverage trends like dirty sodas. They've really brought that together quite well. They've now launched their Blackberry flavor, which was supposed to be an LTO but they've gone ahead and launched. They've made it permanent. Now I guess, seeing the extent to which people really like these flavored Dr Pepper sodas, I guess I wonder what kind of runway there is for that. I mean, there seems to be so many combinations that they could do over time.
Speaker 1:For years and years, pepsi-cola has really used limited-time offerings as a vehicle to add incremental sales and to re-attract people to the core brand. That seems to be the path that Dr Pepper is taking now. I think there was a period where you know you kind of there were questions about okay, to what extent are you just sort of diluting the brand, and you know you could talk about that a little bit. There was a period where there was some concern about whether it was just too much LTO activity, I think with social media. Now it's almost kind of it feels like there's a rebirth in how LTOs can be used and the way you can use them with social media. That is working pretty well for Keurig Dr Pepper.
Speaker 2:I think that's right. I mean, I was very skeptical many years ago about LTOs, limited time offers, because I felt that they basically cannibalized the other brands in the market. And that was true some years ago, I think. With social media and the ability to talk directly to consumers on social media, I think the LTOs probably have value now. You know, I also think that you know back a decade or two ago and you don't hear as much about it now. But it plays into what you were talking about about flavors Dwayne.
Speaker 2:There was a lot of talk about cola fatigue and what we saw over the years was the share of the total carbonated soft drink market held by colas declined and declined and declined and declined. And I'm not sure where it is today, but I can tell you it's much, much, much lower than it was a couple of decades ago. And I think that some of these flavor brands I think that back 15, 20 years ago Mountain Dew was a juggernaut and Mountain Dew probably could still be a juggernaut if energy drinks hadn't come in and taken a bit of Mountain Dew's positioning. Dr Pepper for sure, is a juggernaut If you look at some of the other brands that have really grown recently. I mean Canada Dry has had a great run.
Speaker 2:You know some of the smaller CSDs that you've talked about, like Poppy and Olipop, a little bit different, but I think that you know I've been a skeptic about the future of CSDs. I still am, but I think that Dr Pepper has shown that with the right marketing, with the right bottler relations, with the right flavors, with the right focus by the owners, you know CSDs can and should have a good future. Maybe they won't grow double digit or high single digits, but I simply refuse to believe that with the right marketing, with the right execution, that CSDs can't get back to at least volume growth of low single digit and a few points of pricing produces nice revenue growth.
Speaker 1:Let's take a quick break from the conversation so I can tell the audience about a brand new product the Keurig Dr Pepper System Map Book. This just-released guide offers detailed territory-by-territory maps covering both Keurig Dr Pepper's company-owned distribution system and the US distribution territory structure specifically for brand Dr Pepper. We also detail where flagship Dr Pepper is handled by Coca-Cola and Pepsi bottlers. Think of this as three guides in one. And don't forget, you can get equally detailed territory-by-territory maps of the Coca-Cola and PepsiCo systems as well in our the Coke and Pepsi Systems Resource Guide. Understand the critical Coke, pepsi and Dr Pepper distribution networks from the ground up.
Speaker 1:If you're interested in going deeper on the topics that we discuss on this podcast, I encourage you to subscribe to our Beverage Digest digital newsletter and archive. Here you will unlock exclusive insights that you won't read anywhere else. Plus, you'll get valuable data snapshots for the industry's most critical categories. See where growth is happening before anyone else. And let me tell you about our Beverage Digest Factbook, which gives you a detailed look at annual category, company and brand sales trends covering all channels dating back to the 1980s. That includes retail fountain, up and down the street, everything.
Speaker 1:And don't forget our Beverage Digest Future Smarts Conference where top industry leaders discuss and debate the most critical industry topics all in a single day. This is your ticket to network with industry thought leaders and get set for your next critical deal. Yeah, I tell you another thing about the limited time offerings to LTOs. That sort of makes that environment a little different. Now, too, is the just the data that these companies have at their disposal. You know they can really analyze consumer trends and survey data and the other things that they do to measure consumer sentiment, and you can really, I think, target more the kinds of flavors that are going to resonate with consumers. Perhaps I think that must be playing into some of the LTO activity we're seeing now as well.
Speaker 2:I agree with you. Again, going back to one thing I think Dr Pepper has been so good at what they've done is that they've kept competition at bay. So there are plenty of colas on the market, diets and regulars owned by Coke and Pepsi. Sprite has a much smaller but good competitor in 7-Up. Pepsi's got their new Lemon Lime. There virtually is no real competition for Dr Pepper and I think that's helped it grow and I also think that's a product of really, really good brand activity by the folks of the Dr Pepper company.
Speaker 1:Yeah, when you look at also the marketing around Dr Pepper these days and how they use social media just to touch on that a little bit more too, I mean they must have been pinching themselves when they were. You know these social media influencers, or even just you know some of the micro influencers you know doing videos about mixing Dr Pepper with pickles, and you know just the millions of page views that happened as a result of that. The fact that they could capture that kind of attention on social media and reintroduce even young consumers to that brand, that's been pretty remarkable too. They were able to jump on the dirty soda trend. There are now shops that are selling dirty sodas, like fountain shops that are expanding across the US from Utah where they kind of got started. You're seeing a lot more activity around that. They've done some tie-ups, some marketing crossovers with Coffee Mate to create a creamer that you can mix with Dr Pepper. It's a lot of interesting activity that they're taking advantage of.
Speaker 1:These days, you know, and social media is changing so fast I don't think you can always count on that.
Speaker 1:So what you look for you know people like us.
Speaker 1:What we look for is what are you doing to build the brand outside of that, because you know that can be somewhat fickle social media. And you know, I think some of the on the flip outside of that, because you know that can be somewhat fickle social media. And you know, I think some of the on the flip side of the social media you've got them sort of owning college football in the halftime of the. You know the major college football games with their you know halftime contest for college scholarships and their Fansville ads that you know. You know they're covering both sides. They've got the big national occasions, which are still relevant in some situations, usually around sports. But then the social media activity. That's on a much more micro level, where you're reaching consumers who may not have as much exposure to your brand but they're just interested in sharing wacky stuff like pickles and Dr Pepper. The fact that they're able to cover both ends of that, I think, bodes well here as they progress and you look for more growth coming up.
Speaker 2:I also think some good decisions were made going back some years. Today, the company that owns Dr Pepper, as everybody knows, is called Keurig Dr Pepper. But many years ago Dr Pepper was owned by Cadbury Schweppes, which was a UK company, and the US company was called Dr Pepper 7-Up. But back in the late 1990s, early 2000s, as Coke and Pepsi got very excited about bottled water and put a lot of time and attention and focus and money behind brands like Aquafina and Dasani, the guy who was CEO of the parent company Cadbury Schweppes I remember talking to him or doing an interview with him and I said you know, what are you going to do about water in North America?
Speaker 2:And he said not much. And I said why. He said I think that over many years to come, water in North America is going to basically become a lower priced private label proposition and I don't think it pays for us to be in it in a major way in North America. Well, of course, john Sunderland was 100% right. I mean, coke and Pepsi still have decent-sized presence with Aquafina and Dasani, but as your data shows, dwayne, today the bottled water business is almost 60% private label. The reason I'm bringing this up is because that kind of insight, whether it was smart or lucky. That kind of insight, whether it was smart or lucky, they just focused and focused and focused on that big flagship brand, dr Pepper, and I think the value of that shows in the results that we're seeing today.
Speaker 1:I mean, it's just a few years ago. You know 2017, 2018, that you know maybe 2017, that Dr Pepper kind of. I mean some might have argued they were getting a little distracted with. You know buy, for instance, and you know acquiring buy and you know some of the partner activity. You've seen Kirk Dr Pepper with a very focused you know the new, the iteration since 2018 with a very focused eye on that carbonated soft drink platform. At the same time that they've been building out their partner strategy and you know it seems like they focused on really high growth areas and being careful not to distract themselves away from brand Dr Pepper as they chase some of these higher growth areas or emerging areas etc. I feel like they've kind of played that strategy pretty well Again, focusing on your flagship, making sure you're doing everything you can to capture the opportunity and the growth from a brand like Dr Pepper, while also looking for opportunities in those high growth areas with your partner brand strategy.
Speaker 1:I do wonder, given all of the now activity around energy drinks for KDP, I mean they've got, of course, they did a deal with Nutribolt. You know a year or two ago for C4. You know they've now picked up Ghost Energy. They've got a deal with Black Rifle Coffee. I mean, they got a lot riding on energy. Now what is the risk that that could somehow create a distraction when it comes to Keurig Dr Pepper and for the bottlers that carry that brand? I mean, I guess Coke and Pepsi have shown, you know, especially Coke has shown that you can kind of keep focus on your flagship brands at the same time you distribute your bottlers, distribute a brand like Monster on the energy side. But what are your thoughts when it comes to KDP and any risk around that?
Speaker 2:I suppose it's a risk, but they have not shown themselves vulnerable to distraction over many, many, many years. There was a time when water was the golden rainbow and everybody's excitement with non-carbs, and of course they did buy Snapple, and Snapple today is a nice small brand. But you know they have kept their eye on CSDs and they've got a really nice business today with Dr Pepper Canada Dry, today with Dr Pepper Canada Dry and Diet Dr Pepper. All those brands have decent size share, decent size scale and no one can predict the future. As you've heard me say, my mother told me never to have a crystal ball, but I would imagine that I would probably bet a nickel. But I would imagine that I would probably bet a nickel that they're going to keep focus just fine on Dr Pepper. It's such a part of the culture of the company and I think Dr Pepper probably has a good runway for growth ahead of it.
Speaker 1:You know talking about other big changes in the KDP system and we've talked a lot about the bottlers, john. But you know we've also got to talk just a minute about, you know, kdp and their system optimization. I mean they're taking back some territories where it makes sense. They've got, you know, a really big action now in the Texas courts related to Ray's Coca-Cola bottling in California and the Dr Pepper franchise that Ray's holds and you know they're going to be. That agreement is going to be terminated. They've gotten notice already and Dr Pepper will move back into the Dr Pepper system in late 2025, late this year. You know everyone's waiting to see how that's going to roll out.
Speaker 1:During our Future Smarts Conference Andrew Archambault, who is just the most recent US refreshments leader who's now heading over to Hershey he talked about the fact that that's not necessarily that that had a lot to do with the fact that it was opportunistic that there was a contract there that was very specific specifically allowed them to do with the fact that it was opportunistic that there was a contract there that was very specific, specifically allowed them to do that and that you know you shouldn't look at that as some you know sign that they're going to take back Dr Pepper over time. You know, I think they clearly want to own more of that now, in this sort of modern landscape, they probably would like to own more of their Dr Pepper system. But you know, it does kind of raise a question of how that's going to evolve over time and what that's going to mean for the brand and for the carbonated soft drink category in general in the US.
Speaker 2:Right Again. As we've talked on previous podcasts, I think the genius of the growth of Dr Pepper has been having most of that volume in the Coke and Pepsi systems and I've got great regard for the smarts of the KDP executives. But I scratch my head when I think of the potential impact on Dr Pepper, at least in some channels in Southern California, of moving out of the Coke system. But we'll have to see what happens there.
Speaker 1:And one other thing before we go, John we should mention that Dr Pepper has this really interesting opportunity when it comes to the Hispanic population as well. I mean, that's a massive growth segment in the United States with a massive amount of buying power, and I think you're going to see Keurig Dr Pepper really paying attention to that and going even deeper when it comes to that demographic going forward as they look to continue this expansion and look to continue that growth.
Speaker 2:And that's very important because I think in some markets where Dr Pepper historically has had a low share, the growth of the Hispanic population in those markets, like New York, could basically boost the presence and growth of Dr Pepper. And you know, it'll be really interesting to see what happens in these non-legacy markets as the Hispanic population grows in those areas.
Speaker 1:And I think that's where some of these flavor limited time offerings are really going to be important as well.
Speaker 2:Yeah, They've always had such a love for the brand and they think the brand is so much fun. And I remember going down when I had Beverage Digest Dwayne. I remember one December going down to Texas for a meeting at the headquarters of what was then probably Dr Pepper 7-Up and walk into a conference room and they said it's chilly outside, we have some hot Dr Pepper for you today. I thought hot Dr Pepper and they love their Dr Pepper, hot or cold, and I got to say that hot Dr Pepper with a slice of lemon in it wasn't bad at all.
Speaker 1:I've never tried that. I've got to try that. It was kind of a viral thing about a year ago people talking about hot Dr Pepper, so I've definitely got to try that. So I'll try that. Maybe we'll compare notes here on a future podcast. But, john, as always, it's so great having you. Thank you so much. Thanks for diving into Dr Pepper with me today and we'll see you soon.
Speaker 2:Great being with you, Brian Take care.
Speaker 1:The Breeze is produced by Beverage Digest. Visit our website to learn more about our products and subscribe to our