Perform a Porter's five forces analysis on the becerage industry.

In your opinion, what are the beverage industry's Key Success Factors (KSF)? What are the most CRITICAL factors that lead to success in this industry?

CASE 8 Dr Pepper Snapple Group 2011: Fighting to Prosper in a Highly Competitive Market ph S Harrison Unversity of Richmond Larry Young. President and CEO of Dr Pepper Seapple Group, Inc. (NYSE: DPS) seemed to be on a roll. Named 2010 Beverage Executive of the Year by Sverage Industry magazine, he led the company erough three very difficult economic years since it arated from the London-based food and beverage gat Cadbary Schweppes. Reflecting on that time, he chuckled, "There couldn't have been a worse year to o public Triggered by the collapse of mortgage- backed securities, the recession froae credit markets and led to unprecedented commodities prices. In spite of adverse economic conditions and fierce competi tion, the company managed to obtain modest growth in sales in 2010 Perhaps most satisfying of all was the recent tarnaround of the Snapple brand, which had been straggling for many years. Sales volame for the brand grew 10 percent in 2010, fueled by new prodacts, packages, and distribution. In addition, Dr Pepper, Canada Dry, Crush, Mott's, and Hawailian Punch all experienced increases in demand. A healthy cash flow allowed the company to reduce its debt increase dividends, and reparchase shares. A question remained as to whether the company was simply taking advantage of some fairly obvious opportunities that it could not pursoe when it was owned by Cadbary Schweppes, or whether this number three firm could actually begin to prosper in an industry dominated by two of the strongest brands in the world. After all, although DPS sales were up almost 2 percent in 2010 profits were lower than in 2009. In comparison, Coca- Cola Company experienced revenue growth in 2010 of 13.3 percent, with operating income increasing by 27 percent. During the same time period, PepaiCo had revenue growth of 33.8 percent and growth in operating profit of 3.6 percent The Dr Pepper Snapple Story The original Dr Pepper soft drink was invented in 1885 by a young pharmacist named Charies Alderton. At the time, Alderton was working at Morrison's Old Corner Drug Store in Waco, Texas, which served carbonated soft drinks from a soda fountain. Using that resource, Alderton began to experiment with his own recipes and soon discovered that one particular drink, referred to as "the Waco," was gaining popularity among his customers. As demand grew, Alderton and Morrison brought in a third partner to help with the manufacturing and bottling of the soft drink. The partner was Robert S. Lanenby, owner of the Circle "A" Ginger Ale Company. Alderton left the basiness shortly thereafher, but Morrison and Lanenby continued, eventually forming what would come to be known as the Dr Pepper Company, named after a friend of Morison. The company was introduced to the general public in 1904 at the World's Fair Exposition in St. Louis From its humble beginaings in Morrisons Old Corner Drug Store, the company Morrison and Lanenby started has become one of the largest beverage manufacturers in North America DPSs current peoduct portfolio is closely tied to the history of mergers and acquisitions of its one- time parent company, Cadbury Schweppes plc (Cadbary Schweppes). Cadbury Schweppes emerged in 1969 from the merger of Cadbury plc, a British confectionary and a soft drink company, and Schweppes, an international beverage brand. In the three decades that followed Cadbury Schweppes gained the third largest share of the beverage market in North America through strategic acquisitions Some notable acquisitions included the Duffy-Mott Company (later known as Motrs), Canada Dry, Sunkist, Crush, and Sun Drop in the 1980s. In 1993, the company bought the A&W brands Squirt and Vernors as well as its signature root beer and cream soda cses ined or oo dat d good ered gee pacis de the hp e of DyS Haon in preparing th c gtteRShool of Banthe Univerity of Rchmond for providing me wth the re dto reah dhis conpary and ts competitive eionmen 115 flavors. Cadbury finally purchased Dr Pepper/Seven UP Inc, in 1995, an acquisition that brought Dr Pepper, TUP, IBC Root Beer, and the Welch's soft drink line into the company portfolio In 2000, Cadbury Schweppes acquired the Snapple Beverage Group (Snapple). Snapple had previously been part of a failed acquisition by Quaker in 1994. The acquisition was intended to help Quaker strengthen its beverage division, which at the time included Gatorade. However, after failing to successfully integrate the contrasting corporate cultures, in 1997 Snapple was acqaired by Triarc Companies, an investment company with a history of purchasing struggling assets It was from Triarc that Cadbury Schweppes ultimately acquired Snapple. Three years after acquiring Snapple, Cadbury Schweppes combined its four North American beverage companies-Dr Pepper/Seven UP, Snapple, Mott's, and Bebidas Mexico-into Cadbury Schweppes Americas Beverages (CSAB). By 2006, CSAB had developed a common vision, business strategy, and management structure and established its own bottling and distribution network. In May 2008, under the direction of Larry Young CSAB officially spun off from Cadbury's confectionary manufacturing division and became known as Dr Pepper/Snapple Group, Inc Today, DPS manufactures, markets, and distributes over 50 brands of carbonated soft drinks, juices, mixers, teas, and other beverages. In addition to Dr Pepper and Snapple brand drinks, DPS products include Motts jaices, 7UP A&W, RC Cola, Squirt, Sankist soda, Canada Dry, Schweppes, Hawalian Punch, Yoo-Hoo, and other well-known beverages. It has a market share of over 40 percent in the non-cola carbonated soft drink category president and CEO Larry Young, chief financial officer Martin Ellen, and President of Packaged Beverages Rodger L. Collins President and CEO: Larry Young. Larry Young has been president and CEO of the company since October 2007 and led the separation of DPS from Cadbury in 2008. Before coming to the company, Young worked for more than 25 years in the PepsiCo system, where he began as a truck driver and worked his way up to president and CEO of Pepsi-Cola General Bottlers. In 2005, he joined the Dr Pepper/Seven UP Bottling Group, again as press dent and CEO. Young finally joined Cadbary Schweppes in April 2006 when it acquired Dr Pepper/Seven Up Chief Financial Officer: Martin Ellen. Martin (Marty) Ellen joined DPS in April 2010. He has 25 years of experience as chief financial officer in companies in the manufacturing franchising, distribution, and service industries. His previous appointment was at Snap-on Inc, a manufacturer and marketer of professional tools, equipment, and software. His beverage industry expe rience took place at Whitman Corporation, owner of Pepsi-Cola General Bottlers, where he helped realign and expand Pepsi bottling territories in the United States and Europe President of Packaged Beverages: Rodger L Collins. Rodger Collins has been affiliated with the bot- tling group of Dr Pepper Snapple or its predecessors for more than 30 years, having survived numerous acqui- sitions, restructurings, and the spin-off of DPS from Cadbury Schweppes. In his current role, he manages a coast-to-coast sales force and fleet with responsibility for direct-to-store delivery and warehouse distribution. The Company Board of Directors As a publicly traded company, DPS management is directed by a board of directors chaired by Wayse Sanders, who served as Chairman and CEO of Kimbetly Clark Corporation until retiring in 2003. As stated in the company's Corporate Governance Guidelines the board's responsibility is to manage the business affairs of the company, including regular evaluation of strategic direction, policies and procedures, and top management It must ensure that the company's managers act in tre best interests of the company and its stockholders and maintain a high level of ethical conduct." In addition to Chairman Sanders, there are eight more members of te board of directors, including John Adams, formerly of Trinity Industries and Texas Commercial Bank Terence Martin, former senior vice president and CFO of Quaier Oats and DPS CEO Larry Young" (for full informan on directors, see Exhibit 1) Dr Pepper Snapple Group, Inc. is a major beverage company with an integrated business model including brand ownership. bottling. and distribution of nonalcoholic beverages in the United States, Canada, and Mexico. The company's portfolio includes dozens of brands of fiavored (non-cola) carbonated soft drinks and noncarbonated beverages like mixers, juice drinks, and ready-to-drink teas and juices. Since the spin-off of Cadbury in May 2008, the company has established itself as the top non-cola carbonated soft drink company in the United States, and has maintained the number three spot in the broader beverage industry in North America The Management Team Current DPS management includes seasoned professionals with decades of experience in the food and beverage industry. Most notable in the organization are Globe Jan Ryytockphoto.com Stockphone.com 3 of 12 Exhibit 1 Board of Directors Wayne R. Sanders, Chairman Mr Sanders has served as a director since May 2008 and is chairman of the board of directors and chairman of the nominating and corporate govemance committee. Mr. Sanders served as the chairman and the chief executive officer of Kimberly Clark Corporation from 1992 unbil his retirement in 2003. Mr Sanders curently serves on the boards of directors of Texas Instru ments Inc and Belo Corp He previoualy served on the board of directors of Adolph Coors Company Mr Sanders is also a National Trustee and Governor of the Boys & Gils Club of Amenca and was a member of the Marquette University Board of Trustees from 1992 to 2007, serving as chairman from 2001 to 2003 Larry D. Young, President, Chief Executive Officer, and Director uny Young is president and chif esecutive ofice for Dr Pepper Snapple Group. Inc, one of the world's leading bevenage companies. Mr. Young was named president and chief executive officer in October 2007 afber serving as president and chief operating officer for the company's Bottling Group division, and led the spin-off of Dr Pepper Snapple Group from Cadbury Scweppes plc in May 2008 Mr. Young joined the company in Aprl 2006 through its full acquisition of Dr PepperSeven Up Boting Group, where he was president and CEO since 2005. As head of operations, he played a central role in heiping to ceate a new business model for a fuly integrated beverage company In his 30-year career, Mr. Young has been involved with producing and seling virtually every type of beverage in the Americas and across Europe and Russia. He served more than 25 years in the Pepsi system, most ecently with PepsiAmenicas and before that with Pepsi-Cola General Botlers, where he began on a route truck and worked his way to president and chief operating officer John L. Adams, Director Mr Adams has served as a director since May 2008. Mr. Adams served as Executive Vice President of Trinity Industries, Inc. from January 1999 to June 2005 and held the pcsition of Vice Chairman from July 2005 to March 2007 Prior to joining Trinty Indua tes, Mr Adams spent 25 years in various posnons with Texas Commerce Bank, NA and its successor Chase Bank of Texas National Association From 1997 to 1998, he served as Chairman and Chief Executive Officer of Chase Bank of Texas. Mr Adams curently serves on the boards of directors of Trinity industries, Inc. and Group 1 Automotive. Inc, where he has served as chair man since April 2005. He previously served on the boards of directors of American Express Bank Ltd and Philips Gas Company Terence D. Martin, Director Mr Martin has served as a director since May 2008 and serves as chairman of the audit commimtee Mr. Martin served as Senior Vice President and Chief Financial Officer of Quaker Oats Company from 1998 until his retirement in 2001. From 1995 to 1998, he was Executive Vice President and Chief Financial Officer of General Signal Corporation Mr. Martin was Chief Financial Officer and Member off the Executive Committee of American Cyanamid Company from 1991 to 1995 and served as Treasurer from 1988 to 1991. Snce 2002, Mr Martin has served on the board of dieectors of Del Monte Foods Company and currenty serves as the chairman of ts audit committee. Pamela H. Patsley, Director Ms Patsley has served as a director since May 2008. Ms. Pataley senved as Senior Executive Vice President of First Data Corporation from March 2000 to October 2007 and President of First Data International from May 2002 to October 2007 She net red from those positions in October 2007. From 1991 to 2000, she served as President and Chief Executive Officer of Paymentech, Inc, prior to its acquistion by First Deta Ms. Patsley also previously served as Chief Financial Officer of First USA Inc. Ms. Patsley currently serves on the boards of directors of Molson Coors Brewing Company and Teas Instruments Incorporated, and she is the chair of the audt commatee of Texas Instrumens Incorporaned Ronald G. Rogers, Director Mr Rogers has senved as a director since May 2008. Mc Rogers served in various posnions with Bank of Montreal between 1972 and 2007 From 2002 to 2007, he seeved as Deputy Chais, Enterprise Risk & Portlolio Management, BMO Financial Group and from 1994 to 2002 he served as Vice Chauman, Pensonal & Commercial Client Group Prior to 1994, Mr. Rogers beld various executive vice president positions at Bank of Montreal Jack L Stahl, Director Mr Stahl has served as a director since May 2008 and serves as chairman of the compensation committee Mr. Stahl served as Chiel Executive Officer and Presidert of Revlon, Inc. fom February 2002 unal his retirement in September 2006 From February 2000 to March 2001, he served as President and Chief Operating Officer of The Coca Cola Company and previoualy served as Chief Financial Officer and Senior Vice President of The Coca-Cola Company's North America Group and Senior Vice President of The Coca Cola Company's Americas Group Mr Stahl cumently serves on the board of directors of Schering-Plough Corporation M Anne Srostak, Director Ms Srostak has served as a director since May 2008. Sence June 2004, Ms. Sostak has served as Presdent and Chief Execu trve Officer of Seostak Partners LLC, a consulting fem that advises executive officers on strategic and human resource issues From 1998 until her retirement in 2004, she served as Executive Vice President and Corporate Director-Human Resources and Diversty of FleetBoston Financial Corporation She also served as Chairman and Chief Executive Officer of Fleet Bank-Rhode Island from 2001 to 2003. Ms. Saostak cumently4a dinector of Belo Corp, ChoicePoint, Inc. Tupperware Brands Corporation, and Spherion Corporation, where she serves as chair of the compensation committee Mike Weinstein, Director M Weinstein was elected as a drector in February 2009 Mr. Weinsten is a co-founder of INOV8, hich specializes in develop- ing and commercialzing innovative beverage products such as the HYDRIVE energy drink Mr Weinstein served as president nd chief operacing officer of ABW Brands, inc. in the ealy 1990s and later as chef executive officer of Snapple Beverage Group, which was acquired by Cacbury Schweppes in 2000 During his caneer, he also has overseen such brands as RC Cola, Squirt, Mstic, Stewarts, and Vernors and has led global innovation and business development teams. Mr Wenstein was named to Beverage World magazine's Hall of Fame in 2000 and received Beverage Digest's prestigious "Visionary Award" in 2004. oue 2011, Boad of directors, hmpWnvetor dpeppenapple.com Company Strategies Since it was spun off from Cadbury Schweppes, DPS management has concentrated a great deal of time and attention on strategy development and implementation. Through focused strategic development, management has sought to establish the firm as a leader in the higher margin segments of the nonalcoholic beverage industry. Consistent with this strategic direction, management has established six specific strategies focus on marketing (for a detailed explanation of DPS strategles, see Exhibit 2) Marketing Shortly after DPS demerged from Cadbury, the economy in the United States began to struggle and discretionary spending was constricted. As a resalt, sales in the industry tanked, leading many companies to drastically cut marketing badgets. In contrast to the mainstream reaction, DPS intensified its focus on marketing and advertising. This decision was based on an analysis of the early 1980s recession conducted by Nielson, a major marketing research company and a partner of DPS. The analysis looked at brands across multiple consumer categories in 1983 and 1984, and found that the most successful brands all pursoed a common strategy- continued investment in core brands. Consequently, DPS dramatically increased its marketing badget for its core brands and focused its marketing money on brand development, availability, and advertising Build and enhance leading brands Focus on opportunities in high-growth and high- margin categories Increase presence in high-margin channels and packages Leverage the firm's integrated business model. Strengthen the firm's distribution channels through acquisitions Improve operating efficiency. While most of the strategies are centered on internal development, management is attempting to broaden the firm's market through continued acquisition activity and contractual agreements with other organizations Whether internally or externally focused, however, the key to implementing each of these strategies has been a Brand Development. Despite slow sales in the over all non-cola carbonated soft drink market, many top managers within the company believe that flavored soft drinks showed room for growth. As Young put it, they Exhibit 2 Srategy THE KEY ELEMENTS OF OUR BUSINESS STRATEGY ARE TO Build and Enhance Leading Brands. We une an ongoing process of market and consumer analysis to idently key brands that we beleve have the greatest potential for profsable sales growth. We intend to continue to invest most heavily in these key brands to drive profeable and suatainable growth by strengthening consumer awareness developing innovative products and brand extensions so take advantage of evolving consumer trends, improving distribution, and inereasing promotional eflectiveness Focus on Opportunities in High-Growth and High-Margin Categories. We are focused on driving growth in our business in selected profitable and emerging cantegones These canegonies indlude ready-to-drink teas, energy drinks, and other functional beveragen We also intend to capitalize on opportunsies in these categories through brand extensons, new product launches and selective acquisitions of brand and disrbution righes Increase Presence in High-Margin Channels and Packages. We are focused on improving our product presence in high- margin channels, such as convenience stores, vending machines, and small independent retail outlets, primanly by increased selling activity and investments in coolers and other cold drink equipment We also intend to increase demand for high margin products lke sngle-senve packages for many of our key brands through increased promotional activity and innovation Leverage Our Integrated Business Model. We beleve our integraned brand ownership, bottling, and distribution business model provides opportunities for net sales and profit growth through the algnment of the economic inserests of our brand ownership and our botting and dstribution businesses We intend to leverage our integrated buainess model to reduce costs by creating greater geographic manufacturing and distribution coverage and to be more fecble and responsive to the chang ing needs of our large retail customers by coordinating sales, service, distribution, promotions, and product launches Strengthen Our Route-to-Market through Acquisitions The acqusition and creation of our Bottling Group is part of our longeterm ininatve to strengthen the route-to-market for our products. We believe addibional acquisitions of regional bot ing companies will broaden our geographic coverage and enhance coordination with our lange retail customers Improve Operating Efficiency. We believe our recently announced restructuring will reduce our selling general, and admin istrative expenses and improve our operating efficiency hn addition, the integration of recent acquisitions into our Botting Goup has oreated the opporturity to improve our mandacturing, warehousing, and distribution operations Souce 2011, Stagy, hnpvetor droeppennapple.com believe that while consumers are growing tired of colas, Snapple in the late 1980s and early 1990m ng Efficiency We believe our recenty announced restructuring will reduce our selling general, and admin and improve our operating efficiency in additon, the integration of recent acqusitions inmo our Botting the or an im our manufacturing, warehousing, and distribusion operations growth Mo the use 5 of 12 believe that while consumers are growing tired of colas flavored soft drinks are the "sweet spot" in the indus- try. By developing its flavored brands like Dr Pepper, Sunkist, and A&w, DPS believes it has the potential to gain market share over its rivals." DPS has made a number of changes to its soft drink brands, including the addition of a new Green Tea Ginger Ale to the Canada Dry line, the extension of a 7UP line with added antioxidants, an updated recipe for A&W Root Beer that includes aged vanilla, and the development of Dr Pepper Cherry for consumers who prefer a lighter tasting Dr Pepper. In addition to soft drink development, the company seeks to recover lost distribution in its line of healthier flavored water and energy drinks. For example it invested in Hydrive Energy LLC, a small energy drink maker, and created Snapple Antioxidant water to compensate for the loss of Vitaminwater to Coca-Cola. Also, DPS created Venom, a new energy drink to recover losses from two previous brands More than just adding and investing in new product line extensions, DPS also refocused its efforts related to existing products. The most dramatic change occurred within its Snapple brand, which had been struggling before separating from Cadbury. In the third quarter of 2008, Snapple sales had fallen 10 percent, contributing greatly to the company's 31 percent drop in profits for that quarter. In response to the drop in sales in 2008, DPS changed everything about the product-its packaging and look, taste, and the marketing thrust associated with the brand. Snapple presented new formulations for its teas to increase consumer interest and began to focus on the product's health benefits. DPS also started distributing Snapple juices and lemonades in sleek 16-ounce glass bottles with labels indicating their health benefits. These and other changes paid off, as sales of Snapple actually increased in 2010, in spite of a poor economic climate. Snapple in the late 1980s and early 19590s. In connection with Dr Pepper, DPS's most heavily supported brand the company launched a television commercial campaign including celebrities like the rapper/producer Dr. Dre and Gene Simmons of the rock band Kiss. In the commercials, the celebrities endorse Dr Pepper by referring to its superior taste and flavor and then simply stating. "Trust me, I'm a doctor. In addition to television commercials, DPS also began to target specific demographic segments through online viral marketing In 2009, for example, the entire badget for Sunkist was allocated to a viral campaign targeted towards teenagers and 20 percent of the budget for Dr Pepper was allocated to Internet advertising Although this was a fairly significant change compared to earlier DPS marketing strategies, management believed that reaching out through the Internet would help the company connect to its markets in a more relevant way. To supplement the increase in advertising, DPS also focused more attention on distribution. One of the major methods for increasing distribution was by investing in coolers, vending machines, and fast-food fountains containing DPS products. In 2008, DPS added 31,000 fountain placements in fast-food restaurants throughout the United States. In 2009, the company announced that it would add its products to 14,000 McDonald's franchises in order to increase its availability in that chain from 60 to 100 percent. In that same year, the company also outlined a strategy that would add 175,000 coolers (units in which soft drinks are stored and kept cool) and vending machines throughout the coantry over a five-year period." Again, Trebilcock commented on the strategy f you have people drinking your products at work, ar play, when they go into the grocery store, they're going to buy that product and take it home with them. So we put a very strong focus on what we like to refer to as our lower per-cap markets. We beefed up our marketing there, we've made sure we were closing distribution voids, placing cold drink equipment. Our fountainfoodservice team has done an excellent job of getting Dr Pepper and some of the Increasing Advertising and Availability. Despite the company's strong history of brand development, many of its brands, such as Mott's, A&W, and Canada Dry, had not recelved any serious advertising invest ment since the end of the 1990s. Beyond developing the brands, the company recognized the need to increase its efforts in advertising and distribution. Marketing Chief Jim Trebilcock explained the strategy ether brands on the fountain equipment. Other major investments in distribation came in the form of joint ventures with proven distributers that significantly increased the availability of particular soft drink brands. For example, agreements with Pepsi Bottling Group in New York and PepsiAmericas in Minnesota more than doubled the availability of Crush, making it the second best-selling orange-flavored soft drink behind Sunkist, which DPS also owns" Also, in 2010, DPS signed a $715 million deal that gives Coke the rights to distribute Dr Pepper and Canada Dry in the US We have, in our portfolio, a host of brands that are very trusted, high-quality brands and at times like these, we believe if we invest in them...we can make a pretty significant impact on our business moving forward and actually strengthen and position ourselves for consistent growth when we come out of this economic downturn. Most notable among the changes in advertising was the use of celebrities, a strategy that had worked for Operations DPS is headquartered in Plano, Texas, and employs approximately 20,000 people throughout North America and the Caribbean. It operates 24 production plants and more than 200 distribution centers in those areas. support and staffing for DPS. Since the separation, the company has developed completely independent IT operations, with primary hosting based in Toronto, Canada, and two primary vendors for application support and maintenance outsourced to India Under the leadership of Marty Ellen, CFO, the company has embarked on a program it calls Rapid Continuoas Improvement (RCI). According to Ellen, "RCI is about excelling at delivering customer value and improving productivity by eliminating all non value-adding activities, thereby enhancing growth opportunities." The company is examining its supply chain, including innovation, manufacturing, marketing distribution, and administration, and looking for ways to increase efficiency, consistent with Six Sigma improvement methods. Almost all beverage concentrates are produced in a plant in St. Louis, Missouri. The business model includes both company-owned direct-store-delivery (DSD) distribution networks and third-party distribution. Within the model, approximately 40 percent of the company's volume is distributed through company owned networks; another 40 percent through third- party distributers in the Coca-Cola, Pepsi-Cola, and independent bottler systems; and the remainder split between warehouse direct and food-service distributors. All of the internal DSD distribution is carried out by railroad and truck, operating on a hub-and-spoke supply chain system with major distribution centers in key areas. The hub-and-spoke system is set up to provide manufacturing capabilities in all five major US regions-northeast, southeast, midwest, southwest, and western. It allows for orders to be filled closer to in 2010, sales of Sunkist, 7UP,and A&W declined, leading customers, increasing customer service and controlling to overall company sales of $5.6 billion, up about 2 percent transportation costs. As stated by Joe Rowland, senior vice president and business unit general manager for the central and southeast regions, DPS has "the ultimate goal of providing better service to the customer, because that will translate to sales." A good example of DPS's operations is its largest hub, which is based in Northlake, Ilinois and distributes its appropriate context (for detailed financial statements to Chicago and its surrounding areas. The facility is about one million square feet in size and employs 1,250 in cash flow from operations during 2010 and used the people, of which 750 work on site and the rest in the field. On-site operations consist of nine manufacturing lines, including plastic bottle, can, and hot-fill glass lines for DSD distribution, and a bag-in-box line for The Industry Financial Performance Overall, DPS's financial performance since the spin-off has exceeded analysts' expectations. While many of the company's brands experienced moderate to high growth from 2009. Even so, in spite of the sales increase and measares the company took to increase efficiency, profits were down approximately 5 percent from the prior year. Nevertheless, the company experienced a huge loss in 2008, and the economy was very challenging in 2009 and 2010, so financial performance should be considered in see Exhibit 3). The company experienced large increases additional cash to increase dividends, pay down debt, and buy back common stock soda fountains at food-service locations. Most of the lines are versatile, allowing for variations in batches, but some also have unique capabilities. For example, Line produces cold-fill glass and plastic bottles, while the Snapple line produces hot-fill products. The Northlake facility produces about 220,000 cases of product a day that are stored in the company's 25-dock warehouse until they are loaded onto one of the 150 trucks owned by the facility. In addition to line manufacturing. the facility utilizes a quality assurance program to check for both internal specifications and external requirements. DPS woeks closely with external auditors, sach as the American Institute of Bakers, to ensure that manufacturing and other processes conform to product requirements To facilitate business operations, DPS makes use of highly integrated information systems and networks. Prior to 2008, Cadbury Schweppes supplied all IT The Dr Pepper Snapple Group (DPS) competes in the US beverage manufacturing and bottling industry (NAICS 42119). The industry is made up of about 3,000 companies, including manufacturers, bottlers, and distributers of nonalcoholic beverages. Despite the vast number of companies in the indastry, revenues are highly concentrated. Over 90 percent of the combined $70 billion in annual revenues are generated by the three largest companies-Coca-Cola, PepsiCo, and DPS-and their subsidiaries. Carbonated soft drinks, including colas and other flavors, bottled waters, juices, and a variety of syrups and mixes, are this industry's major products Beverage Consumers and Market Trends The beverage manufacturing and bottling industry is greatly influenced by economic and other market trends associated with consumers. Factors such as on, the tabbit 3 Financial Statements for De Pepper Snapple Group For the Year Ended Decem DR PEPPER SNAPPLE GROUP INC Fabibit 3 Financial Statements for De Pepper Snapple Group DR PEPPER SNAPPLE GROUP INC. For the Year Ended December 31 CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2010, 2009, and 2008 2010 2009 2008 (in milions of dollars, except per share data) Net sales $5,636 $5,531 S5.710 Cost of sales 2243 2234 2390 Gross proft Seling. general, and administrative experses 3,393 3.297 3,120 2233 2135 2075 Depreciabon and amortization mparment of goodwll and intangible assets Restructuring costs 127 117 113 1,039 57 Ceher operating espense incomel, net Income Goss) from operatons (40) 4 1,025 1,085 (168 interest expense 128 243 257 lsterest income (41 (32) Loss on early extinguishment of debe 100 21 Other income, net (22) (18 Income foss) belone provision for income taxes and equity in eamings of unconsolidated subsidiaries 821 868 (375 Provition for income taxes 294 315 (61) Ihcome don) before equity in earnings of unconsolidated subsidaries 527 553 014 Equty in eamings of unconsolidated subsidharies, net of sas 1 2 Net income doss) S 528 s 555 S(312 Eamings (oss) per common share Basic 219 2.18 (1.23 Diluted 217 2.17 (1.23 Weghted average common shaes outstanding Basic 2404 254 2 254 0 Duted 2426 255.2 254 0 Cash dividends decared per common share 0.90 015 DR PEPPER SNAPPLE GROUP INC December 31, 2010 December 31, 2009 CONSOLIDATED BALANCE SHEETS (In millions except share and per share data As of December 31, 2010 and 2009 ASSETS Curent assets Cash and cash equivalents 315 $ 280 Accounts receivable: Trade, net 536 540 Oher 35 32 Inventories 244 262 Delemed tax assets 57 53 Prepaid expenses and other current assets 122 112 Total cument ansets 1,279 1,309 Property plant and equipment, net 1,168 1,109 (Continued Exhibit 3 Financial Statements for Dr. Pepper Snapple Group (Continued) DR PEPPER SNAPLE GROUP INC. December 31, 2009 December 31, 2010 CONSOLIDATED BALANCE SHEETS (In milions except share and per share data) As of December 31, 2010, and 2009 ASSETS Investments in unconsolidated subsidaries 11 2,983 2,984 Goodwill 2.691 2,702 Other intangible assets, net 552 543 Other non-ounent assets 151 Non-current deferred tax assets 144 $8.859 $8,776 Total assets LIABILITIES AND STOCKHOLDERS EQUITY Cunent liabilites s 850 S 851 Accounts payable and accrued expenses Defemed revenue 404 Curent portion of long-term oblgations Income taxes payable 18 4 1,338 854 Total current abilees 1,687 2,960 Long-term obligations 1,083 1,038 Non-current defemed tax liabilites 1,515 Non-current deferred revenue 777 737 Ceher non-cument habilities 5,589 Total labilbes 6400 Commiements and contingencies Stockholders equty Prefered stock, 5.01 par value, 15,000,000 hares authorined, no shares ssusd Common stock, $.01 par value, 800,000,000 shares authorized, 223,936,156 and 254,109 047 shares issued and outstanding for 2010 and 2009, respectively 3 2 Additional paid-in capital 2085 3.156 400 87 Ratained earings (28 (59 Accumulated other compreheraive loss Total vtockholders' equity 2.459 $8.859 3,187 $8.776 Total lablities and stockholders' equity DR PEPPER SNAPPLE GROUP INC. For the Year Ended December 31 SEGMENT RESULTS 2010 2009 For the Years Ended December 31, 2010 and 2009 Net sales $1,063 $1,156 Beverage concentranesi 4,098 4,111 Packaged beverages 382 357 Latin America beverages $5,636- $5,531 Net sales Segment operating proft (SOP) S 745 S 683 Beverage concentrates 530 573 Packaged beverages Continued Exhibit 3 Financial Statements for Dr. Pepper Snapple Group (Continued) DR PEPPER SNAPPLE GROUP, INC. SEGMENT RESULTS For the Years Ended December 31, 2010 and 2009 For the Year Ended December 31 2010 2009 Segment operating profit (SOP) Lanin America beverages 40 54 Total SOP 1,321 1,310 Unalocated corporate conts 288 265 Other opersting expense ncomel, net 8 (40) Income doss) from operations $1,025 $1,085 Interest expense, net 125 239 Loss on early extinguishment of debe 100 Other income, net (211 (22 Income (loss) before provision for income taxes and equity in earnings ef unconsolidated subsidiaries S 821 S 868 Soue Dr Pepper Sapple Group, Inc 2010 Repent 10 economic stability, seasonality, commodities prices and consumer tastes and preferences are of great importance to beverage company managers who develop and implement strategies partly for the purpose of successfully dealing with changes in the industry. Perhaps the most significant factor influencing food and beverage companies is economic stability. Since carbonated soft drinks are a discretionary item, sales are considerably impacted by weakness in the economy Between 2008 and 2010, the economy was the major problem facing beverage companies like DPS, Coke, and Pepsi. Intensified by the inefficiency and failure of the securities market, the United States found itself in one of the worst recessions in history. As unemployment rates increased and the credit markets froze, consumers significantly reduced spending. Discretionary spending as a percentage of total consumer spending dropped below 16 percent, its lowest level in over 50 years. As discretionary spending decreased, consumers turned from flavored drinks and colas to less expensive alternatives, including tap water. DPS CEO Larry Young explained the phenomenon, "Even though the majority of Americans are still working, the fear factor that has gripped the nation is having a significant impact on consumer psychology." As a resalt, Young suggested that shoppers were actively seeking out good deals and making decisions based on "product satisfaction and price." Along with influencing consumer confidence, the recession significantly increased commodity prices Specific to the beverage industry, the prices for aluminam natural gas, resins, corn, pulp, and other commodities all increased. These commodities are used to produce beverages and, exert a considerable amount of pressure on industry margins. For instance, the price of sugar o the US commodity market rose from under 12 cents per pound in 2007 to 37 cents per pound in October 2010. Several other consumer trends influence the beverage manufacture and bottling industry. Factors such as changes in demographics, health concerns, preferences changes in lifestyle, and seasonality all influence marketing and distribution methods. An increased concern about health and wellness is one of the most significant trends affecting the beverage industry. As consumers continue to reduce caloric intake and look for products richer in vitamins, the less-healthy sectors of the beverage industry are expected to shrink" As soft drink sales decline, however, demand for healthier alternatives such as low or no calorie soft drinks and noncarbonated drinks such as sports drinks, ready-to-drink teas, and favored and regular bottled water are projected to grow." Through 2013, sales of bottled water were projected to grow by 9 percent, ready-to-drink teas by 24 percent, and davored and functional waters by 71 percent. Additicnal consumer trends of significance to the industry are seasonality and changing demographics Relative to seasonality, beverage sales tend to be higher during the sammer months and holidays. Sales are slower during the winter months and flactuate somewhat with the weather. With regard to demographics, the most significant changes in the United States have to do with the prevalence of aging Baby Boomers and growth in the Hispanic population. Market Channels Although the final consumer drives demand for the beverage industry, beverage companies direct customers are bottlers/distributers and retailers. Building strong relationships with these customers is an important part of succeeding in the beverage industry. Bottling and distribution companies buy beverage concentrates from beverage brand companies, from which they manufacture, bottle, and distribute finished beverages. Additionally, bottlers manufacture and distribute syrups and mixes used in soda fountains for the food-service industry. Major beverage bottling companies include Coca-Cola Enterprises, PepsiAmericas, the Pepsi Bottling Group, and the Dr Pepper Saapple Bottling Group. For DPS, a sabstantial portion of net sales in beverage concentrates is generated through bottlers not owned by the company. As much as two-thirds of DPS volume in concentrates is sold to third-party bottlers Some of these are owned by competitors such as PepsiCo and Coke. In 2010, 71 percent of Dr Pepper's sales volume was generated through distribution of its products threough Coca Cola and PepsiCo-affiliated bottlers. Productive relationships with these bottlers are possible because of the strength and position of the Dr Pepper brand. Retail companies buy finished beverages from distributers for mass merchandise and sale to the final consumer. Recent trends in the industry have caused many retailers to consolidate, resulting in a smaller number of large, sophisticated retailers with greater buying power. Major retailers tied to the beverage industry include Walmart, Target, Kroger, SuperValu and Safeway. In addition to these retailers, beverage manufacturers also depend on food-service customers that buy syrups for fountain drinks. Major food-service companies include McDonald's, Burger King, and Yum Brands, which includes KFC, Pizza Hut, and Taco Bell company's position post spin-off, Coke and Pepsi had a significant head start on acquiring healthier juices, teas and enhanced waters. Analysts suggest that DPS had insufficient resources at the time to maintain pace with competing acquisitions Aside from its problems gaining overall market share in the United States, DPS has also had difficulty competing internationally. The company generates about 89 percent of its revenues in the US market, 80 percent of which come from carbonated soft drinks In comparison,, Coke collects about 74 percent of its sales outside of North America, and Pepsi generates over 40 percent of its sales internationally. Still, DPS management has expressed an intention to maintain its focus on North America In general, while DPS has strong brands and distribution, the company has struggled to compete head- to-head with industry leaders Coke and Pepsi. Based in Atlanta, Georgia, the Coca-Cola Company (Coke) is the largest manufacturer, distributer, and marketer of nonalcoholic beverage concentrates and syrups in the world. Coke markets four of the world's top five carbonated soft drinks-Coca-Cola, named the world's most valuable brand, Diet Coke, Fanta, and Sprite. Coke also owns and licenses nearly 500 other brands including diet and light beverages, enhanced waters, juice drinks, teas, coffees. and sports and energy drinks. Coke is primarily a beand owner and manufacturer, selling its concentrates and syrups to bottling and canning companies, fountain wholesalers and retailers, and distributers As outlined on its company website, the three phase mission of Coke is "to refresh the world, to inspire moments of optimism and happiness, and to create value and make a difference. Consistent with its mission statement, Coke maintains an international focus, marketing and distributing its products in over 200 coantries." To facilitate its international focus, Coke spends a significant amount of capital on technological development and marketing For example. Coke introduced a new fountain beverage machine that used "micro-dosing" technology to dispense over 120 beverages from one machine. The machine takes up the same space as the eight-valve machine currently being used by food-service businesses" International sales, technology development, and marketing have made Coke one of the most widely recognized and profitable companies in the world (for selected financial data ce the Coca-Cola Company, see Exhibit 4). PepsiCo, Inc, another major DPS competitor, is based in North Carelina and is a global leader in beverage, snack, and food manufacture and distribution Pepsi is divided into three major business units PepsiCo Americas Foods, PepsiCo Americas Beverages and PepsiCo International. These business units manufacture, market, and sell a variety of convenien The Competition The beverage manufacturing and bottling industry is highly competitive and constantly shifting to respond to changes in consumer tastes and preferences. Competitive position is most effectively attained through brand recognition and based on factors such as price, quality, taste, selection, and availability. Major competitors in the manufacturing segment include the Coca-Cola Company (Coke), PepsiCo, Inc. (Pepsi) Nestl, S.A, and Kraft Foods, Inc. Major competitors in the bottling and distribution segment include Coca- Cola Enterprises, Pepsi Bottling Group, and numerous smaller bottlers and distributors. Relative to the competition, DPS is the third largest beverage business in North America, behind Coke and Pepsi, which collectively account for 63 percent of the sales in the industry." According to analysts, part of the reason that DPS is so mach smaller than its competitors in the United States can be attributed to the spin-off of DPS from Cadbury in 2008. Taking advantage of the Exhibit 4 Selected Competitor Financial Date Gin milions mad a teal had COCA-COLA COMPANY AND SUBSIDIARIES Year Ended December 31 2009 2010 Exhibit 4 Selected Competitor Financial Data in miliona) COCA COLA COMPANY AND SUBSIDIARIES Year Ended December 31 2010 2009 2008 Net operating revenues Cost of goods sold $35,119 $30,990 $31,944 12,693 11,088 11,374 Selling. general and administrative expenses 13.158 11.358 11,774 Other operating charges 819 313 350 Operating income 8,449 8.231 8,446 Net income after taxes 118090 6824 5,807 Total cument assets 21579 17,551 12,176 Total assets 72,921 48671 40,519 Total cument labilnes 18508 13,721 12,988 Total long-term debt and other Sabilities 23.096 9604 7,059 Total equity 31,317 25,346 20,472 PEPSICO, INC. Fiscal Years Ended December 25, 26 and 27 2010 2009 2008 Net operating reverues $5783 $43,251 $43,232 Cost of goods sold Seling, general, and administrative experses 26,575 20.099 20,351 22814 15.026 15,877 Amortization of intangible assets 117 63 4 Operating proft 8.332 8,044 6,959 Net income aher tases 6,320 5,946 5,142 Total current assets 17569 12,571 10,806 Total assets 68,153 39,848 35,994 Total curent lablites 15,892 8,756 8.787 Total long-term debt and other labilines 30.785 13.650 14,625 Total equity 21,476- 17,442 12,582 Note Much of the dnce beween opeating inceme and net income in 200 abtable toa gain from recasslying the value of the compey's preo vmninbuane d duing the yer The acquisition is aso refected by te large ine i totals in 2010 Sources Coca Cols Company 2009 and 2010 Repon 10K PepCo, inc 2009 and 2010 Anmual Rapons salty, sweet, and grain-based snacks, carbonated soft drinks, noncarbonated beverages, and other foods in approximately 200 countries. Some of the company's key brands include Pepsi, Pepsi One, Diet Pepsi, Mug Mountain Dew, Sierra Mist, Frito-Lay, Doritos, Cheetos, Tostitos, Sunchips, SoBe and SolBe Lifewater, Propel, Quaker, and Tropicana. Pepsi also holds the trademarks for many valuable products, including Lipton, Starbucks Dole, and Ocean Spray. Pepsi's goal is to be the world's best consumer products company in convenient foods and beverages The company seeks to accomplish its goal by producing "financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate." An important part of Pepsi's mission statement is its socially responsible approach, concentrating on improving all aspects of the world in which it operates-the environment, societies, and economies." The company puts its vision into action through meeting consumer needs, environmental stewardship initiatives, societal benefits, employee support and organizational programs, and operations that increase shareholder value As is the case for Coca-Cola, Pepsi's strategies maintain an international focus and include improvements in product development and marketing. The company has recently made significant changes to packaging, redesigning Pepsi brand products, Sierra Mist, and others. Additionally, Pepsi introduced a new advertising campaign that put a modern twist on the "Pepsi Generation" campaign used in the 1960s. The campaign combined footage from the old advertisements with current images to express the new tagline, "Every Generation Refreshes the World. By focusing on social responsibility and diversifying its brand and product portfolio, Pepsi has become one of the most successful global food and beverage companies in history (for selected financial data on the PepsiCo, Inc, see Exhibit 4) of the company's individual brands, Young knew the firm had to cut costs in order to improve profit margins. However, DPS could not afford to make any cuts that would damage its strong beands or alienate consumers Furthermore, DPS's rivals, Coke and PepsiCo, were experiencing much higher performance levels than DPS and were not going to stand still. How can DPS continae to grow at levels that will satisfy shareholders? To what extent should acquisitions, joint ventures, licensing agreements, and/or internal growth tactics be pursued? Should DPS diversify into other product markets? What other growth options are available to the company Should any products or brands be divested? Young had a great deal to think about. Possible Future Actions Moving into 2011, Larry Young had many decisions to make. While he was pleased by the performance of many NOTES S.Theodor 2009, DPS puts the faor back in CSD Beverage industry, July 15, 16-18 K.E. Gce, 2009, Dr Pepper proe ises but Snapple busine continues to suer, The Wall Street Jounal, May 14, 810 MBell 2009, The history of Dr Pepper, About.com, tp iventosabout.com/ibayvenonidpeppe November 27 2009, Campany Nistory, Dr Pepper Snapple Gp pevestor dpeppernapple.com/index.cfmtpagesect-history, November 22 Deignon, 2003, Sapple Boston Harvand Business Pshing 2009, Company hory, Dr Pepper Snapple Group, op ot bid 2 2010, FTC approvs Coke's botter de, Wall Street Jounal Onine Edeon, hpechproque.comideeviaw755054266ccound 14731, Sepember 27 29 2 2009, Company hitory, Dr Pepper Snapple Group, op ot Theodore, op ot 31 30 Scom, 200, Pla focus Plant transons to a DPS hub, 4 Bveage nduaty July 15, 1000, 20-22 32 DrPapper Sappie Group, Inc 2009 Aual Repot 34 Dr Papper Sapple Group, Inc 2010 Anual Report, 10 35 200, nduary prole Beverage manufacue and bonting Fit Research Online, mpewmanichmond edu 2541nduny asphapter-08pid-164, November 27. 36 May&KE Grace 2009, Dr Pepper's outiook jiced by vale drinks The Wall Set Jounal March 27, 83 37 d 38 TGraves &EYEwon, 2009, industry Sunveys Foods & Nonalceholle Beveages New York: Sanderd&Poor's 3JRvin2009, Reshingly heaty Contract Manufacturing& Packaging August 24, 12-14 40 Dr Pepper Sapple Oroup, Inc 2009 Anual Raport 41 in 2009, op ot 42 Dr Papper Seapple Group Inc. 2009 Anual Report 43 Dr Ppper Seapple Group, Inc. 2010 Annual Report 44 Dr Papper Seapple Greup ne 2009 Annual Repont 45 bid 33 Dr Papper Snapple Group Inc. Aenal Rapon 2010 9 2011, Leadeship team, Dr Pepper Snapple Group, htpunvetor dpeppepple.com/anagement.cde, March 3 10 2009, Board of Directors, Dr Pepper Snapple Group hpuvesto drpapperapple .cm/idrectocMach 3 11. 2009, Caporate govemance guidelines Dr Pepper Snapple Group ttpesshaeholder.comidownioadsOPS0/783s862500 27407672041115-4260bad 67733841b/OPS WebDec5432 pd, December 14 12 200, Beard of Directons Dr Pepper Snapple Grop op ei 13 200,Stegy, Dr Pepper Snapple Group, Mpuinvetor dpppepple.com/index.cpagese-gyDecember 14 14 N. 2muda, 2009, Dr Pepper ups marketing spend, readies for growth Adesing Age 8001 May 4, 18 15 P.Zob 2010, Dr Papper sees icky prices wening pros Wal Street Joumal, December 28, 81. 16 .Theodere, op ot 17. Mkay, 2008, Dr Pepper gets stake in enengy drink, The Wl Street Joumal ly 25, 811 18 5. Theodore, op cit 19 2008, A napeer look for Snapple, Progressive Grocw, hp 46 Dr Pepper Snapple Group n 2010 Anual Repo 47 EOdy 2008 Dr Pepper Strong brand, cheap stock, Kpnge om kiplinge.com/mpicksarchive200e pick521 4 b Coca Cale Company 2009 Annual Report 50 200, Our eompany Mssion, vision & value, Coca Cola Compans httpuwww.thecoca-colacompany.comlourcompanymissionv vluesheml, December 15 51.Theodee, 2009, Category focus 2009 sot drink report eveage indutry, 100O March 15, 16-22 s2 bid 53 PepaCe, Inc 2010 Annual Report S 2009, Cempary Our mision and vision, PepCe, Ine, hp pepsico.com/CompanyOur Masion-andaon hl, December 15 55 PC Inc 2009 Aual Rapot 56 Theodor, 2009, Category focus, 20 op et progresvegrocr com/progrivcecontentdisplay eauresbege/e3875506147e November 28, Apel 7 20 42 bid 21 N Zuda, 2009, op o 22 id18 23 JDeighton, Snapple op ct 24 N2uda, 2009, op ot 25 Theodore, op ot 2 id 17 27.S. Theodore, op ot CASE 8 Dr Pepper Snapple Group 2011: Fighting to Prosper in a Highly Competitive Market ph S Harrison Unversity of Richmond Larry Young. President and CEO of Dr Pepper Seapple Group, Inc. (NYSE: DPS) seemed to be on a roll. Named 2010 Beverage Executive of the Year by Sverage Industry magazine, he led the company erough three very difficult economic years since it arated from the London-based food and beverage gat Cadbary Schweppes. Reflecting on that time, he chuckled, "There couldn't have been a worse year to o public Triggered by the collapse of mortgage- backed securities, the recession froae credit markets and led to unprecedented commodities prices. In spite of adverse economic conditions and fierce competi tion, the company managed to obtain modest growth in sales in 2010 Perhaps most satisfying of all was the recent tarnaround of the Snapple brand, which had been straggling for many years. Sales volame for the brand grew 10 percent in 2010, fueled by new prodacts, packages, and distribution. In addition, Dr Pepper, Canada Dry, Crush, Mott's, and Hawailian Punch all experienced increases in demand. A healthy cash flow allowed the company to reduce its debt increase dividends, and reparchase shares. A question remained as to whether the company was simply taking advantage of some fairly obvious opportunities that it could not pursoe when it was owned by Cadbary Schweppes, or whether this number three firm could actually begin to prosper in an industry dominated by two of the strongest brands in the world. After all, although DPS sales were up almost 2 percent in 2010 profits were lower than in 2009. In comparison, Coca- Cola Company experienced revenue growth in 2010 of 13.3 percent, with operating income increasing by 27 percent. During the same time period, PepaiCo had revenue growth of 33.8 percent and growth in operating profit of 3.6 percent The Dr Pepper Snapple Story The original Dr Pepper soft drink was invented in 1885 by a young pharmacist named Charies Alderton. At the time, Alderton was working at Morrison's Old Corner Drug Store in Waco, Texas, which served carbonated soft drinks from a soda fountain. Using that resource, Alderton began to experiment with his own recipes and soon discovered that one particular drink, referred to as "the Waco," was gaining popularity among his customers. As demand grew, Alderton and Morrison brought in a third partner to help with the manufacturing and bottling of the soft drink. The partner was Robert S. Lanenby, owner of the Circle "A" Ginger Ale Company. Alderton left the basiness shortly thereafher, but Morrison and Lanenby continued, eventually forming what would come to be known as the Dr Pepper Company, named after a friend of Morison. The company was introduced to the general public in 1904 at the World's Fair Exposition in St. Louis From its humble beginaings in Morrisons Old Corner Drug Store, the company Morrison and Lanenby started has become one of the largest beverage manufacturers in North America DPSs current peoduct portfolio is closely tied to the history of mergers and acquisitions of its one- time parent company, Cadbury Schweppes plc (Cadbary Schweppes). Cadbury Schweppes emerged in 1969 from the merger of Cadbury plc, a British confectionary and a soft drink company, and Schweppes, an international beverage brand. In the three decades that followed Cadbury Schweppes gained the third largest share of the beverage market in North America through strategic acquisitions Some notable acquisitions included the Duffy-Mott Company (later known as Motrs), Canada Dry, Sunkist, Crush, and Sun Drop in the 1980s. In 1993, the company bought the A&W brands Squirt and Vernors as well as its signature root beer and cream soda cses ined or oo dat d good ered gee pacis de the hp e of DyS Haon in preparing th c gtteRShool of Banthe Univerity of Rchmond for providing me wth the re dto reah dhis conpary and ts competitive eionmen 115 flavors. Cadbury finally purchased Dr Pepper/Seven UP Inc, in 1995, an acquisition that brought Dr Pepper, TUP, IBC Root Beer, and the Welch's soft drink line into the company portfolio In 2000, Cadbury Schweppes acquired the Snapple Beverage Group (Snapple). Snapple had previously been part of a failed acquisition by Quaker in 1994. The acquisition was intended to help Quaker strengthen its beverage division, which at the time included Gatorade. However, after failing to successfully integrate the contrasting corporate cultures, in 1997 Snapple was acqaired by Triarc Companies, an investment company with a history of purchasing struggling assets It was from Triarc that Cadbury Schweppes ultimately acquired Snapple. Three years after acquiring Snapple, Cadbury Schweppes combined its four North American beverage companies-Dr Pepper/Seven UP, Snapple, Mott's, and Bebidas Mexico-into Cadbury Schweppes Americas Beverages (CSAB). By 2006, CSAB had developed a common vision, business strategy, and management structure and established its own bottling and distribution network. In May 2008, under the direction of Larry Young CSAB officially spun off from Cadbury's confectionary manufacturing division and became known as Dr Pepper/Snapple Group, Inc Today, DPS manufactures, markets, and distributes over 50 brands of carbonated soft drinks, juices, mixers, teas, and other beverages. In addition to Dr Pepper and Snapple brand drinks, DPS products include Motts jaices, 7UP A&W, RC Cola, Squirt, Sankist soda, Canada Dry, Schweppes, Hawalian Punch, Yoo-Hoo, and other well-known beverages. It has a market share of over 40 percent in the non-cola carbonated soft drink category president and CEO Larry Young, chief financial officer Martin Ellen, and President of Packaged Beverages Rodger L. Collins President and CEO: Larry Young. Larry Young has been president and CEO of the company since October 2007 and led the separation of DPS from Cadbury in 2008. Before coming to the company, Young worked for more than 25 years in the PepsiCo system, where he began as a truck driver and worked his way up to president and CEO of Pepsi-Cola General Bottlers. In 2005, he joined the Dr Pepper/Seven UP Bottling Group, again as press dent and CEO. Young finally joined Cadbary Schweppes in April 2006 when it acquired Dr Pepper/Seven Up Chief Financial Officer: Martin Ellen. Martin (Marty) Ellen joined DPS in April 2010. He has 25 years of experience as chief financial officer in companies in the manufacturing franchising, distribution, and service industries. His previous appointment was at Snap-on Inc, a manufacturer and marketer of professional tools, equipment, and software. His beverage industry expe rience took place at Whitman Corporation, owner of Pepsi-Cola General Bottlers, where he helped realign and expand Pepsi bottling territories in the United States and Europe President of Packaged Beverages: Rodger L Collins. Rodger Collins has been affiliated with the bot- tling group of Dr Pepper Snapple or its predecessors for more than 30 years, having survived numerous acqui- sitions, restructurings, and the spin-off of DPS from Cadbury Schweppes. In his current role, he manages a coast-to-coast sales force and fleet with responsibility for direct-to-store delivery and warehouse distribution. The Company Board of Directors As a publicly traded company, DPS management is directed by a board of directors chaired by Wayse Sanders, who served as Chairman and CEO of Kimbetly Clark Corporation until retiring in 2003. As stated in the company's Corporate Governance Guidelines the board's responsibility is to manage the business affairs of the company, including regular evaluation of strategic direction, policies and procedures, and top management It must ensure that the company's managers act in tre best interests of the company and its stockholders and maintain a high level of ethical conduct." In addition to Chairman Sanders, there are eight more members of te board of directors, including John Adams, formerly of Trinity Industries and Texas Commercial Bank Terence Martin, former senior vice president and CFO of Quaier Oats and DPS CEO Larry Young" (for full informan on directors, see Exhibit 1) Dr Pepper Snapple Group, Inc. is a major beverage company with an integrated business model including brand ownership. bottling. and distribution of nonalcoholic beverages in the United States, Canada, and Mexico. The company's portfolio includes dozens of brands of fiavored (non-cola) carbonated soft drinks and noncarbonated beverages like mixers, juice drinks, and ready-to-drink teas and juices. Since the spin-off of Cadbury in May 2008, the company has established itself as the top non-cola carbonated soft drink company in the United States, and has maintained the number three spot in the broader beverage industry in North America The Management Team Current DPS management includes seasoned professionals with decades of experience in the food and beverage industry. Most notable in the organization are Globe Jan Ryytockphoto.com Stockphone.com 3 of 12 Exhibit 1 Board of Directors Wayne R. Sanders, Chairman Mr Sanders has served as a director since May 2008 and is chairman of the board of directors and chairman of the nominating and corporate govemance committee. Mr. Sanders served as the chairman and the chief executive officer of Kimberly Clark Corporation from 1992 unbil his retirement in 2003. Mr Sanders curently serves on the boards of directors of Texas Instru ments Inc and Belo Corp He previoualy served on the board of directors of Adolph Coors Company Mr Sanders is also a National Trustee and Governor of the Boys & Gils Club of Amenca and was a member of the Marquette University Board of Trustees from 1992 to 2007, serving as chairman from 2001 to 2003 Larry D. Young, President, Chief Executive Officer, and Director uny Young is president and chif esecutive ofice for Dr Pepper Snapple Group. Inc, one of the world's leading bevenage companies. Mr. Young was named president and chief executive officer in October 2007 afber serving as president and chief operating officer for the company's Bottling Group division, and