Cadbury+Beverages%2c+Inc

8/8/2019 Cadbury+Beverages%2c+Inc

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SUMMARY

Introduction p.2

I- The carbonated soft drink industry in the US

- Industry structure p.4- Industry economics p.5- Brands & Products p.6- Consumption behavior p.7

II- Changes in the orange category during the period1985-1989

- Orange category p.8- Relation between market share & market coverage p.11- Relation between market share & advertising share p.13- Brands positioning p.15

III- Cadbury competitive position in the US

- Swot analysis p.16

IV- Crush Positioning p.18

V- Crush advertising & promotion program

- Objectives & strategies p.18

- Advertising budget p.19- Crush advertising budget p.20

VI- Crush Pro forma Income statement p.20

VII- Conclusion p.21

Sides p.22

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INTRODUCTION

Cadbury Beverages, Inc. is a beverages-manufacturing division of Cadbury

Schweppes PLC. It was created in 1969 by a merger of Schweppes PLC (1783,

London, the first worlds soft drink maker) and Cadbury (1830, Birmingham, a

major British confectionery manufacturer).

In 1989, the Cadbury Schweppes PLC was one of the worlds largest

multinational companies and the worlds third largest soft drink marketer (behind

Coca-Cola and PepsiCo), with worldwide sales of $4.6 billion, performed in 110

countries. Beverages accounted for 60 percent of company sales and 53 percent of

its operating income.

Additionally, at that time, Cadbury Beverages, Inc. was the fourth biggest soft

drink marketer in the US (behind Coca-Cola, PepsiCo, Dr.Pepper-7Up), with a

carbonated soft drink market share of 3.4 percent, and the market leader in some

specific soft drinks categories (see exhibit 1).

EXHIBIT 1.

Brand name Leader in category % of the US soft drink salesCanada Dry Ginger ale, soda/seltzer 39

Sunkist Orange-flavored carbonated

soft drinks

22

Crush 20

Schweppes Tonic water 17

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In January 1990, the Cadbury marketing team decided to take up a challenge of

relaunching the Crush, Hires and Sun-Drop soft drink brands, recently acquired

from Procter&Gamble (October 1989). In the beginning, the marketing

executives intended to focus on relaunching the Crush brand on the soft drinks

market. As a result, three main issues need to be tackled:

- rebuilding a cooperative relationship with bottlers,

- developing a base brand positioning consistent with the brand equity,

- developing (objectives, strategies) and budgeting the advertising and

promotion program.

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I- THE CARBONATED SOFT DRINK

INDUSTRY IN THE UNITED STATES

Industry Structure

Three main actors participate in manufacturing and distribution of carbonated soft

drinks in the United States: concentrate producers, bottlers, and retailers. The

concentrate producers and bottlers roles and margins of are different for regular

and diet drinks (see Exhibit 2).

EXHIBIT 2.

1. Regular soft drinks:

Actors Functions Gross

Margin

Net

Margin

Carbonat

e

Producers

- manufacture the basic flavors 86% 16%

Bottlers - add sweetener to carbonated

water

- package in bottles and cans

46% 15%

2. Diet soft drinks:

Actors Functions Gross Margin Net Margin

Carbonat

e

Producers

- manufacture the basic flavors

- include an artificial sweetener

87% 30%

Bottlers - add carbonated water

- package in bottles and cans

43% 12%

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There are approximately 40 concentrate manufacturers in the US, but only three

of them (Coca-Cola, PepsiCo, and Dr. Pepper/7Up) account for 82 percent of

industry sales. As far as bottlers are concerned, they are present in a number of

1,000 in the United States. They may be either owned by concentrate producers,

or franchised. Franchised bottlers are usually given the exclusivity rights for a

certain territory, but they cannot sell a directly competitive brand.

Concerning retailers, those are supermarkets (40 percent of carbonated soft drink

industry sales), convenience stores and small retail outlets, vending machines, and

fountain service (ex. McDonalds). Among the above mentioned, supermarkets

are claimed to be crucial in the companys distribution net.

Industry Economics

Concentrate producers typically arrive at a gross profit of 86% (regular drinks), or

87% (diet drinks). When we take off selling and delivery, advertising and

promotion costs and general and administrative expenses, the net profit may reach

either 16% (regular drinks), or even 30% (diet drinks).

On the other hand, the gross profit for bottlers usually accounts for 43% (diet

drinks), or 46% (regular drinks), whereas the net pretax profit gets at 12% (dietdrinks), or 15% (regular drinks).

In view of the analysis of the above cost structure it seems obvious that

concentrate producers should be more interested in manufacturing diet soft drinks,

and bottlers are supposed to slightly prefer mixing and packing regular drinks.

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Brands and Product Categories

Brands

More than 900 brands are registered on the US market, however most of them sell

their product on local markets. The most successful 10 brands are marketed by 3

major concentrate producers: Coca-Cola, PepsiCo, and Dr.Pepper/7Up, of which

the US market share accounts for 71.4 percent (see Exhibit 3). Six of these top

brands are colas (56.4 percent of market share).

EXHIBIT 3.

Brand Market Share

1. Coca-Cola Classic

2. Pepsi-Cola

3. Diet Coke

4. Diet Pepsi

5. Dr. Pepper

6. Sprite

7. Mountain Dew

8. 7Up

9. Caffeine-free Diet Coke

10. Caffeine-free Diet Pepsi

19.8%

17.9%

8.9%

5.7%

4.5%

3.7%

3.6%

3.2%

2.5%

1.6%

Top ten brands:

Colas:

Regular:

Diet:

Other brands:

71.4%

56.4%

37.7%

18.7%

28.6%

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Flavors

As far as flavors are concerned, cola one is the most popular with market share

accounting for 65.7 percent. Other successful flavors are lemon-lime (12.9 percent

of market share), orange (3.9%), root beer (3.6%), ginger ale (2.8%), and grape(1.1%) ones. The flavor of our concern, orange, occupies the third position, after

cola and lemon-lime, with market share of some 3.9%.

Regular vs. Diet

The carbonated soft drink market is divided into two parts: regular soft drinks and

diet soft drinks. The consumption of diet soft drinks accounts for 31% of total soft

drink consumption and is higher among consumers over 25 years of age.

Consumption Behavior

Buyers

Concerning consumption behavior, the soft drink buyers seem to be very

responsive to different advertising and promotion techniques (especially to

coupon promotions, in-store displays ex end-of-aisle displays, and other

promotions in the place of sale ex shelf tags). Also, it appears that the purchase of

soft drinks (mostly in supermarkets, accounting for 40% of carbonated soft drink

industry sales) is often unplanned.

The US customers drink more soft drinks than tap water, the average American

consumes 46.7 gallons of carbonated soft drinks per year (in 1989 compared to

the 23 gallons in 1969). The typical customer purchasing soft drinks is a married

woman with children under 18 years of age living at home.

Seasonal and Geographical Variations

The consumption of carbonated soft drinks differs slightly according to a season:

it is more pronounced in summertime than in wintertime. Moreover, there seems

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to exist some geographical differences. The highest per capita carbonated soft

drinks consumption in the United States (54.9 gallons in 1989, compared with the

national per capita average of 46.7 gallons) was noted in the East South Central

states of Kentucky, Tennessee, Alabama, and Mississippi. The lowest per capita

carbonated drinks consumption (37.1 gallons in 1989) was that of the Mountain

states (Montana, Idaho, Wyoming, Colorado, New Mexico, Arizona, Utah, and

Nevada).

II- CHANGES IN THE ORANGE CATEGORYDURING THE PERIOD 1985 1989

Orange Category

In 1989 the total sales in the orange-flavored carbonated drink category were of

126 million cases, which means 3.9% of total industry sales through

supermarkets. Four major brands make the core of this category (see Exhibit 4):

Mandarin Orange Slice by PepsiCo (the category leader with a market share of

20.8%), Sunkist by Cadbury Beverages, Inc. (14.4 % of the total market share),

Coca-Colas Minute Maid Orange (14%), and Orange Crush (7.5%).

EXHIBIT 4. Market Shares for the 4 Major Orange Category Brands.

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MOSMMO

Sunkist

Crush

Others

Both regular and diet drinks are present within the orange-flavored carbonated

soft drink category, the regular accounting for 73.2% of the category sales in

average. For more details, see exhibit 5.

EXHIBIT 5. Case Volume in 1989 by Type of Drink: Regular vs. Diet

Brand Regular Diet

Crush 71.3% 28.7%

Sunkist 82.1 17.9%

MOS 49% 51%

MMO 53.1% 46.9%

The shares accounting for diet orange soft drinks are considerably higher for

Mandarin Orange Slice and Minute Maid Orange (51% and 49%) than for

Cadbury orange-flavor brands (Crush: 29% and Sunkist:18%), since their

positioning is based on the young singles and young couples and therefore

corresponds to the diet drinks consumption patterns. This may present an

opportunity for Crush, of which orange diet version could be repositioned as the

one that is drunk by young people (singles and couples) living in big cities, in

opposition to family-based positioning of Crush and Sunkist.

Changes in the Orange Category Sales and Market Shares in

1985-1989.

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During the period of 1985-1989, the total sales in the orange carbonated drinks

category increased by 23.5%, from 102 million cases to 126 million cases (see

exhibit 6). This evolution was due to the launch in 1985-1986 of Mandarin

Orange Slice (MOS) and Minute Maid Orange (MMO) by respectively PepsiCo

and Coca-Cola, which, accompanied by intensive advertising, promotion, and

distribution-rejuvenating efforts, revitalized the category. As a result of the above

change, market shares of main competitors have been subject to some major

changes (see Exhibit 7). In particular, the Cadburys Crush and Sunkist brands

lost a lot of their market share while PepsiCos and Coca-Colas newly created

brands evolved in a successful way.

EXHIBIT 6. Changes in Total Orange Category Sales in 1984-1989.

Year 198

4

198

5

198

6

198

7

198

8

1989

Category Sales [Million

Cases]

102 100 126 131 131 126

EXHIBIT 7. Market Shares Changes in 1985-1989.

Brand

Year

198

5

198

6

198

7

198

8

1989

Sunkist 32% 20% 13% 13% 14%

MOS - 16 22 21 21

MMO - 8 14 13 14

Crush 22 18 14 11 8Total of top 4

brands

54 62 63 58 57

Advertising Expenses.

As for changes in advertising approach, two trends were apparent at that time.

Since 1996 (the year when MOS and MMO were introduced nationally) the total

Annual Supermarket Case Volume of Orange-Flavored Soft Drinks in millions.

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expenditures for print and broadcast media declined each year (see Exhibit 8). On

the other hand, the variety of media used for advertising increased, in addition to

some traditionally used media like spot television and billboards, some new ones

submerged, including broadcast media (network, spot, syndicated, and cable TV

and network radio) and print media (outdoor, magazines, and newspapers).

EXHIBIT 8. Concentrate Producers Advertising Expenditures for Broadcast and

Print Media for Major Soft Drink Brands, 1985-1989 (in thousands of Dollars).

Brand 1985 1986 1987 1988 1989

$ % $ % $ % $ % $ %

MOS 17,80

9

60.3 32,08

0

62.7 29,55

6

67.5 15,00

1

41.2 11,38

8

43.8

Sunkist 7,176 24.3 4,013 7.8 911 2.1 1,719 4.7 2,302 8.9

Crush 4,371 14.8 7,155 14.0 4,297 9.8 6,841 18.8 2,020 7.8

MMO 174 0.6 7,952 15.5 9,027 20.6 12,81

1

35.3 10,46

3

39.5

Total4 29,53

1

100.

0

51,20

0

100.

0

43,79

0

100.

0

36,37

3

100.

0

26,00

7

100.0

Relationship between Market Share and Market

Coverage

EXHIBIT 9. The Four Main Brands Market Shares and Market Coverage Rates,

1985-1989.

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MADARIN ORANGE SLICE

0

16

22 21 21

10

68

87 88 88

0

20

40

60

80

100

1985 1986 1987 1988 1989

Year

Market Share

Market coverage

SUNKIST

32

20

13 13 14

95

8379

86

91

0

20

40

60

80

100

1985 1986 1987 1988 1989

Year

Market share

Market coverage

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CRUSH

2218

1411

8

81 8178 78

62

0

20

40

60

80

100

1985 1986 1987 1988 1989

Year

Market share

Market coverage

MINUTE MAID ORANGE

0

8

14 13 1410

60

87 88 88

0

20

40

60

80

100

1985 1986 1987 1988 1989

Year

Market share0

Market coverage

The above graphs clearly demonstrate that here is some positive correlationbetween the companys market share in the carbonated orange soft drink category

and its market coverage. In practice it means that if the company market coverage

increases, its market share increases too. Consequently, companies in this

category should focus their efforts on their market coverage evolution.

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Relationship between Market Share and Advertising

Share

EXHIBIT 10. The Four Major Brand Market Shares and Advertising Budgets,

1985-1989.

MANDARIN ORANGE SLICE

0

16

22 21 21

6062

67

41 43

0

20

40

60

80

100

1985 1986 1987 1988 1989

Year

Market share

Advertising share

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SUNKIST

32

20

13 13 14

2420

2 48

0

20

40

60

80

100

1985 1986 1987 1988 1989

Year

Market share

Advertising share

CRUSH

2218

1411

8

15 14

9

18

7

0

20

40

60

80

100

1985 1986 1987 1988 1989

Year

Market share

Adverti sing share

MINUTE MAID ORANGE

0

8

14 13 14

0

36

20

35

40

0

20

40

60

80

100

1985 1986 1987 1988 1989

Year

Market share

Advertising share

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Brand Positioning

The four main competitors in the orange carbonated soft drink category tried to

adopt different positioning strategies for their products. Some of them stressed the

orange flavor of their products (Minute Maid Orange), some others attempted to

associated drinking their product with a specific lifestyle (teens lifestyle for

Sunkist). Also, they targeted different age groups and household models:

Mandarin Orange Slice and Minute Maid Orange focused their attention on young

adults with no children (singles, couples) while putting stress on better for you

idea (health, fit, vitamins, natural). The Cadbury Beverages Brands traditionally

aimed at families with children and teens at home (see Exhibit 11).

EXHIBIT 11. The Four Major Brands Positioning Strategies, 1989S.

Teens & young adults

Family with children at home

Orange taste

KEY :

Crush : Mandarin Orange slice :

Minute Maide orange : Sunkist :

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There appears to be a positive correlation between marketing coverage and

marketing share, which means that if the market coverage increases, the

corresponding market share increases too.

As far as market shares are concerned, a positive correlation seems less

pronounced, but still present. Also, companies advertising and promotion

strategies seem different: while Sunkist and Crush spend less on advertising and

use less advertising vehicles, Coca Cola & PepsiCo spend a lot even if they win a

small market share. In their promotion campaigns they use a variety of media.

Concerning our positioning recommended for Crush, we will describe it later in

this report.

III- CADBURY COMPETITIVE POSITION IN

THE US SOFT DRINK INDUSTRY

Cadbury Beverages is the American fourth biggest soft drink manufacturers,

behind Coca-Cola, PepsiCo, and Dr. Pepper/7Up, with a market share of 3.4%.

The companys brands are often market leaders within their categories. The major

Cadbury brands sales (in relative terms) are presented on Exhibit 1

In 1989, the orange category market share accounted for 3.9% of the total soft

drinks market share. Cadbury was in the leading position within this category,

with its market share of 22% for both Sunkist (14%) and Crush (8%) brands.

Concerning competitors, the market share for the Coca-Colas Minute Maid

Orange accounted for 14% (1989), and the PepsiCos Mandarin Orange Slice

market share for about 21% (1989). For graphical presentation, see Exhibit 4.

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SWOT Analysis

To complete the analysis of a Crush competitive position in the orange soft drink

category as well as within the soft drink industry, we employed the SWOT

analysis scheme. The major strengths, weaknesses, opportunities and threats are

presented on Exhibit 12 below.

EXHIBIT 12. The SWOT Analysis for the Crush Orange Carbonated Soft Drink

Brand.

INTERNAL FACTORS

STRENGHTS WEAKNESSESS

4th largest marketer in the US

High name

Long-life brand

Know-know

High brand awareness in big

cities

Low market share

Low market coverage

Limited bottlers network

Relatively low ad & promotion

expenditures

Risky positioning :

cannibalization with Sunkist

EXTERNAL FACTORS

OPPORTUNITIES THREATS

Variety of medias vehicles

Increase in sales for diet soft

drinks

Increase of consumption

Huge competition

Heavy advertising expenses

Unplanned soft drink purchase

IV- CRUSH POSITIONING

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Three approaches can be considered to position the Crush brand:

- Attributes : Natural & competitive taste since 1954

Bright color

Regular & diet

- Uses : Orange Crush drinking for fun :during parties & week-end

Orange is better for health than colas: natural vitamins

- Users : Orange can be drink by adults, teens and children

We avoid canibalization with Sunkist

We target family with children

Concerning our positioning recommended for Crush we decided to reposition this

brand on the family with children market segment (as differentiated from Sunkist

families with teens to avoid cannibalization effect). Moreover, we recommend

to position Crush Diet in a different way: by focusing on young singles and

couples (above 24 years old), living in big cities (where Crush is well-known),

and associating its consumption with healthy, natural, dynamic lifestyle). This

would enable a strategy that would be more consistent with the consumption

profile of diet drinks consumers.

V- CRUSH ADVERTISING AND PROMOTION

PROGRAM

Objectives and Strategies

While deciding on our strategy we had some clear objectives in mind. First of all

we thought that the efficient distribution network (bottlers, retailers) is one of the

key success factors in the soft drink industry. That is why we set up as one of our

priorities a rapid and substantial broadening of our cooperation with bottlers in

order to be able to relaunch the Crush brand successfully. Obviously, we

considered it also as a way of increasing our market share in the orange soft drink

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category. Our objective is then a 10% market share for Crush alone in the orange

drink category at the end of 1990 (an 8% market share was recorded in 1989).

Finally, we need to relaunch the Crush brand name by developing its basic

positioning, advertising and promotion strategy, and their successful

implementation. Also, ongoing control of results should be carried on and strategy

adjustments applied if necessary.

In view of the above quoted objectives our strategies for the Crush relaunch are

following: in the beginning we need to recruit new bottlers: for this purpose we

decided to employ the push strategy, which means using our distribution channels

to obtain the largest possible market share. Also, as the market in question is very

responsive to advertising and promotion, we need to take it into consideration and

implement in parallel to the push strategy the pull strategy. This will require using

an increased portfolio of medias (as Coca-Cola and PepsiCo do), as well as

developing merchandising and sponsoring activities. For relaunching the Crush

brand, some specific promotional techniques, such as coupons, special volume

offers, contests, may be employed to attract the maximum of customers.

Advertising Budget :

BRANDS ADVERTISING

EXPENDITURES

MARKET

SHARE %

MARKET

SHARE /

CASES

ADVERTISING

$ SPENT PER

CASE

SUNKIST 2,301,900 14 44,1000.0 0.05CRUSH 1,853.6 8 25,200.0 0.07MandarineOrangeSlice

11,388.1 21 66,150.0 0.17

MinuteMaidOrange

10,463.1 14 44,100.0 0.23

Crush advertising budget :

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Budget : - General : $11,970,000- Diet : $4,189,500

- Regular : $7,780,500

So we allocate $0.38 per case.

Allocation : - $0.18 for dealer loader ( premium given to retailers)- $0.20 for promotion that we divides as follow : $0.1 for displays

& outdoor, $0.05 for TV spots and 0.05 for magazines.

VI- CRUSH PRO FORMA INCOME STATEMENT

Regular (65%) Diet (35%) Regular &Diet

Total sales 15561000 10143000 25704000

Cost of goods sold 2252250 1323000 3575250

Gross profit [$] 13308750 8820000 22128750

Gross profit [%] 85,53 86,96 86,09

Selling and Delivery 409500 220500 630000

Advertising &Promotion 7780500 4189500 11970000General & administrative expenses 2661750 1433250 4095000

Pretax cash profit [$] 2457000 2976750 5433750

Pretax cash profit [%] 15,79 29,35 21,14

CONCLUSION

We should avoid direct competition with Coca-Cola & PepsiCo, it could bring on

a price war. No frontal attack means that Cadbury remains a niche marketer.

We avoid cannibalization with Sunkist in positioning the Crush brand name on the

family with children at home segment. As far as diet Crush is concerned, we

reposition it as a healthy and rich in vitamins, energetic drink for young people

living in big cities.

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Finally, we have no choice but to increase advertising & promotion expenditures

in order to reach our market share and repositioning objectives.

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