Is Dr Pepper Snapple Group's partner brand strategy a risk? - Analysis
The success of Dr Pepper Snapple Group's partner brands portfolio received a mixed reception from analysts. While they could see the benefits of teaming up with third-party, innovative brands, questions remain over the risk of those brands being acquired by other drinks companies.
In terms of how the so-called 'allied brands' performed in DPSG's FY2015 results, Bernstein analyst Ali Dibadj says that they drove half the growth in packaged beverages, "which translates to about half of total company growth". Meanwhile, Wells Fargo analyst Bonnie Herzog notes that the portfolio has been an important contributor to volume growth and operating profit in recent quarters.
DPSG hailed its allied portfolio, saying it allows the company increased access to products it doesn't currently have in its own line-up. And while there was optimism among analysts over new innovations, there was also caution over whether those innovations would disappear to rivals.
Dibadj says a few questions remain top-of-mind as Bernstein considers 2016 and beyond, including 'how protected are you from a competitor taking [allied brands] away?' He gives the example of Glaceau, which was bought by Coca-Cola Co in 2007 in a deal worth US$4.1bn.
CLSA's Caroline Levy describes reliance on allied brands as "risky but potentially rewarding", while Wells Fargo's Bonnie Herzog asks if the initiative will see DPSG "become a victim of its own success".
Levy says the strategy "gives Dr Pepper access to... emerging categories". Herzog adds that the move has not only driven incrimental shelf space for DPSG, it has also added to the overall premiumisation of the DPSG portfolio. And while she acknowledges that there is a risk of brands being acquired, she says: "We do believe that DPS is well positioned to pivot and replace any lost brands which would at least partially offset some of this risk".
As the saying goes: If there is no risk, there is no reward.
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