22 / 03 / 2003Cadbury Schweppes2 Cadbury Beverages: Cadbury Beverages: a division of Cadbury Schweppes PLC, a major soft drink and confectionery marketer First product: First product: an artificial mineral water marketed in : 1969: Schweppes merged with Cadbury, a candy maker, created in : 1989: a turnover of $4.6 billion, present in 110 countries Beverages accounted Beverages accounted, in 1989, 60% of company’s sales Cadbury Beverages is present in three categories: Cadbury Beverages is present in three categories: Carbonates (Canada Dry, Crush), Waters (Schweppes) & Still Drinks/Juices (Oasis, Vida) in Regular and Diet Aim: Aim: Relaunch Crush, an orange-flavored soft drink acquired from Procter & Gamble for $220 million

22 / 03 / 2003Cadbury Schweppes3 The industry structure 3 Leaders: 3 Leaders: Coca-Cola, PepsiCo & Dr. Pepper/7UP Consumption: Consumption: doubled between (46.7 gallons), estimated turnover of $43 billion in retail sales 3 participants: 3 participants: Concentrate producers, Bottlers & Retailers concentrate producers, 1000 bottlers 82% of sales: 82% of sales: the 3 leaders Distribution network: Distribution network: Supermarkets, Convenience stores, Vending machines, Fountain service and Retail outlets Bottlers Bottlers owned by concentrate producers

22 / 03 / 2003Cadbury Schweppes4 The industry economics The industry is characterized by a heavy investment in advertising, selling and promotion Concentrate Producers (per case) Regular: Net Selling Price = $0.76 Gross Profit = $0.65 Pretax Cash Profit = $0.12. Advertising = $0.38Diet: Net Selling Price = $0.92, Gross Profit = $0.80 & Pretax Cash Profit = $0.27. Advertising = $0.38 (50%)

22 / 03 / 2003Cadbury Schweppes5 The industry economics Some differences exist between gross profit of concentrate producers and bottlers & between pretax cash profit/case of regular and diet Bottlers (per case) Bottlers (per case)Regular: Net Selling Price = $5.85 Gross Profit = $2.69 Pretax Cash Profit = $0.89 Selling & Advertising = $1.75 (30%)Diet: Net Selling Price = $5.85, Gross Profit = $2.50 & Pretax Cash Profit = $0.71. Selling & Advertising = $1.75

22 / 03 / 2003Cadbury Schweppes6 Products, Brands & Buyer Behavior Flavors: Flavors: the leader is Cola (65.7% of sales), Lemon (12.9%) and Others (21.4%) Diet31%Regular: 69% Diet soft drinks represented 31% of sales, Regular: 69% 900 brands More than 900 brands in the US, often sold regionally Leaders: Leaders: Coca-Cola (31.2%), PepsiCo (25.2%), Dr. Pepper/7UP (15%) purchase is unplannedsupermarket The purchase is unplanned and the supermarket is the first sale point. Typical supermarket buyer: Typical supermarket buyer: married woman with children buying is seasonal Soft drinks’ buying is seasonal. Teens prefer Regular drinks

22 / 03 / 2003Cadbury Schweppes7 Sales * 2.5 = cases Sales increased between 1984 and In 1989, the volume sold was * 2.5 = cases Leaders are : Leaders are : Mandarin Orange Slice (PepsiCo), Minute Maid Orange (Coca- Cola), Sunkist and Crush (Cadbury)

22 / 03 / 2003Cadbury Schweppes8 Market shares of Sunkist and Crush are declining Cadbury Beverages’ advertising budget is very limited. Market shares of Sunkist and Crush are declining because Cadbury has not a promotion program.

22 / 03 / 2003Cadbury Schweppes9 Brand Positioning map (1989): The positioning of Crush and Sunkist is very blurred. We must reposition our Brands and try to increase the loyalty percentage of our customers.

22 / 03 / 2003Cadbury Schweppes10 Strengths: Strengths: A brand image (1783), Established Customer Franchises, Cadbury’s brands leader in their category, Crush brand has high name awareness with consumers, Agreements with 136 bottlers Weaknesses: Weaknesses: Positioning problems (unadapted and large target, cannibalization risk with Sunkist), Limitative advertising (Insufficient promotion budget, Insufficient of used media), Underdeveloped Diet segment Opportunities: Opportunities: International development in the long term Threats: Threats: Dr. Pepper/7UP could enter the market seeing our weakness

22 / 03 / 2003Cadbury Schweppes11 Key Success Factors 1. Crush’s brand image toward consumers and bottlers 2. Underdevelopment of the diet segment 3. Possibility to use Cola’s bottlers channel for distribution

22 / 03 / 2003Cadbury Schweppes12 Media advertising $ per case for major brands in 1989 Mandarin Orange Slice (21% market share): media advertising per case: 0.17 $ Minute Maid (14%): media advertising per case: 0.24 $ Sunkist (14%): media advertising per case: 0.05 $ Crush (8%): media advertising per case: 0.07 $ Total Cadbury advertising budget: 0.6 $

22 / 03 / 2003Cadbury Schweppes13 RegularDiet$%$% Number of cases Sales ,50 100% 100% Cost of goods sold ,00 54% ,50 57% Gross profit ,50 46% ,00 43% Gross profit/case 2,69 2,50 Selling and delivery ,50 23% 23% Advertising and promotion ,00 4% 4% General and administrative expenses ,50 1% 1% Pretax cash profit ,50 18% ,00 15% Pretax cash profit/case 1,08 0,89

22 / 03 / 2003Cadbury Schweppes14 Objectives: 15% market share 85% market coverage 10 Million $ advertising budget Media meanings: National campaign: TV cable and network, syndicated TV, radio, and magazines, sponsorship, games and competitions Local campaign: TV commercials, radio, flyers, outdoor billboards, newspapers, incentive bonuses on sales with bottlers (15 to 25 cents per case sold)

22 / 03 / 2003Cadbury Schweppes15 Target the young adults segment (18 – 34 years) with purchasing household size of 1 – 2 persons Target the young adults segment (18 – 34 years) with purchasing household size of 1 – 2 persons Focus on the diet segment (50%)Focus on the diet segment (50%) Make advertising campaign oriented towards sugar free and natural flavor taste Make advertising campaign oriented towards sugar free and natural flavor taste Use of both National and Local media campaigns Use of both National and Local media campaigns