USA: Comment - PepsiCo and Cadbury head for citric battle in US
Cadbury-Schweppes subsidiary has filed a lawsuit against PepsiCo for anti-competitive behaviour. PepsiCo and Cadbury Schweppes appear to be heading for a soft drinks war in the US. Cadbury alleges that PepsiCo is unfairly offering restaurant chain Tricon lower prices if it stocks PepsiCo brands exclusively, in the hope of squeezing out Cadbury's Seven Up brand.
Understandably, Cadbury is digging its heels in to protect revenues from one of its largest products.
Cadbury's Dr Pepper/Seven Up subsidiary has said it will take legal action over PepsiCo's alleged anti-competitive behaviour. At issue is PepsiCo's new arrangement with its former subsidiary Tricon, which effectively penalizes the restaurant operator for carrying the Seven Up brand.
Cadbury claims PepsiCo is offering Tricon concentrates at a substantial discount in return for exclusively stocking PepsiCo brands. PepsiCo has yet to respond to the lawsuit.
Tricon is the world's second largest fast-food restaurant group by sales, behind only McDonald's, with a brand portfolio including Pizza Hut and Taco Bell. Yet despite Tricon's size, Cadbury maintains the case is not about the potential lost sales, but rather the principle of the world's second-largest soft drink manufacturer adopting bullyboy tactics to gain advantage over smaller rivals.
Total fountain sales of Seven Up make up less than 10% of Dr Pepper/Seven Up's business in the US, and sales to Tricon make up less than 1% of its US profits. But if Dr Pepper/ Seven Up fails to take action at this stage, it risks finding itself increasingly sidelined by PepsiCo seeking to replicate this agreement elsewhere.
While PepsiCo has the rights to sell Seven Up outside the US, its lack of a serious lemon-lime drink in the US has been seen as a significant gap in its portfolio. It is now trying to address the problem by introducing Sierra Mist, but it is fighting an uphill battle against the might of Seven Up and Coca-Cola's Sprite. PepsiCo has indicated that it is prepared to use controversial tactics to develop Sierra Mist's market share.
Recent Seven Up sales have been disappointing, as competition hots up in the US carbonated lemon-lime drink sector. The US overall carbonated beverages market has been sluggish recently, with manufacturers looking to new products to foster growth. Against this backdrop, Dr Pepper/Seven Up is understandably digging in its heels in to protect the revenue from one of its cash cow products.
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