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Here are 4 Ways Dr Pepper Snapple Group Could Maximize Shareholder Wealth

By William Bias - Jul 25, 2014 at 9:00AM

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Improving efficiency is fine, but Dr Pepper needs to expand its global footprint as well. Here are some ways it could do that.

Source: Motley Fool Flickr by William Bias

Beverage company Dr Pepper Snapple Group (DPS) represents the little brother in the land of the carbonated soda titans. Over the past five years, Dr Pepper Snapple Group only grew its revenue 8% versus 51% for rival Coca-Cola (KO 2.34%) and 54% for beverage and snack giant PepsiCo (PEP 1.64%).

However, all may not be lost. Dr Pepper Snapple Group has four compelling ways it can boost top line growth and make shareholders even richer over the long-term. 

Purchase international trademarks
Dr Pepper Snapple Group derives 88%  of its revenue from the United States. By contrast, Coca-Cola and PepsiCo derive only 40% and 51% of their revenues from the United States, according to Morningstar. Dr Pepper definitely needs to expand internationally.

Dr Pepper faces a significant barrier on this front -- other companies including Coca-Cola and PepsiCo own the trademarks to Dr Pepper Snapple Group's core brands.  One of the things Dr Pepper Snapple Group could do is purchase all of these trademarks back and set up an agreement with PepsiCo and Coca-Cola to distribute these products abroad. This certainly beats having the competition benefit from Dr Pepper Snapple Group's name.

Expand distribution infrastructure
In addition, Dr Pepper Snapple Group could also expand its own distribution infrastructure so it wouldn't need to depend on competitors for its domestic distribution needs. Doing this in combination with the purchase of its international trademarks could go a long way in widening the company's moat. It could help finance these initiatives by lowering share buybacks, outside finance, and by lessening the pace of dividend increases. 

Enter the home carbonation market
Dr Pepper Snapple Group possesses an agreement with Coca-Cola to distribute Dr Pepper and Diet Dr Pepper brands through Coca-Cola's fountains and freestyle machines. Coca-Cola wants to enter the home carbonation market. Dr Pepper Snapple Group could form an agreement with Coca-Cola to distribute its syrups through the new home carbonation machines. Coca-Cola certainly possesses resources and the distribution backbone to pull it off on Dr Pepper Snapple Group's behalf. 

Increase its still beverage portfolio
With the health concerns surrounding carbonated soda beverages, it's essential that Dr Pepper Snapple Group expand its still-beverage portfolio. Still beverages only comprise 20% of Dr Pepper Snapple Group's revenue. For example, Dr Pepper Snapple Group could expand on its Snapple Tea portfolio. Moreover, since Dr Pepper Snapple Group has its hands tied due to a lack of trademark ownership in the international arena, maybe it could develop and expand the distribution of its still-beverage portfolio in that part of the world.

Moving forward
In the first quarter of 2014, Dr Pepper Snapple Group's executives said that the company wants to expand and build a distribution network in Singapore and Hong Kong. The company hopes to see some meaningful results from its Asian business in 2015. Overcoming hurdles in the international markets represents a must if Dr Pepper Snapple Group hopes to give its shareholders superior shareholder returns over the long term.

Foolish takeaway
Investors should keep an eye on Dr Pepper Snapple Group's international efforts. If the company falls further behind on that front then investors should take their investment dollars elsewhere. As always Foolish investors should do their own research before making any investment decisions. 

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Stocks Mentioned

The Coca-Cola Company Stock Quote
The Coca-Cola Company
$64.38 (2.34%) $1.47
Pepsico, Inc. Stock Quote
Pepsico, Inc.
$169.39 (1.64%) $2.73
Dr Pepper Snapple Group, Inc. Stock Quote
Dr Pepper Snapple Group, Inc.

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