COMMENT: Cadbury-Schweppes fights fire with fizz
Cadbury-Schweppes' restructuring plan has generated funds for investment in marketing, research and development. The company's success in the US diet carbonated beverages markets has given it the impetus for greater focus on this segment. However, its reliance for success on an ailing brand such as 7-UP may prove a hindrance in this approach.
Cadbury-Schweppes, the world's third largest manufacturer of carbonated beverages and the UK's leading chocolate maker, has reported a 44% increase in second-half profits after the company closed plants and boosted US soda sales with the launch of new drinks such as 7-UP Plus.
The company has shed 10% of its workforce and closed one out of five factories in an attempt to dramatically cut costs. The restructuring plan saved £75m last year and is expected to save a further £100m this year.
The cost savings from its restructuring plan are to be mainly invested in marketing as well as research and development, with increased spending promised this year to gain a better insight into consumer preferences. Abroad, the company is also keen to sustain momentum having outpaced US market growth last year.
Cadbury-Schweppes is hoping that consumers' burgeoning appetite for diet drinks will continue to drive profits this year, and it estimates that, within a decade, diet drinks could generate half of the company's beverage sales in markets such as the US. Diet versions of brands such as 7-UP and Sunkist currently account for approximately 24% of Cadbury's beverage portfolio. To succeed though, it will need its new 7-UP Plus offering to be a hit, enabling it to revive the 7-UP brand, which has consistently underperformed since the company acquired it 10 years ago.
Cadbury-Schweppes clearly sees the future in the diet segment of carbonated beverages, which is not an unreasonable assessment, given the primacy of the health megatrend at present. By heavily investing in marketing and R&D, it will be looking to develop its beverage brands to enable it to attack the big names such as Pepsi and Coke. However, its first priority must be to revive its flagging 7-UP arm.
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