I. Company Profile
Mission Statement:
“Cadbury Schweppes’ governing objective is growth of shareowner value. We
pursue this objective by focusing on our core businesses of beverages and
confectionery, developing robust and sustainable positions in regional markets,
and growing organically by acquisition.” (CadburySchweppes.com)
History:
Cadbury Schweppes has a very extensive history that could date all the
way back to the late seventeenth, and early eighteenth centuries when the
independent businesses of Schweppes and Cadbury were originated. However,
it wasn’t until their merger in 1969 that they started on the road to becoming one
of the world’s largest suppliers of non-alcoholic beverages, and chocolate and
sugar confectionary. Over the last 34 years, Cadbury Schweppes has acquired
numerous big name products to help increase their market share. Some of these
include Dr. Pepper, 7 Up, Snapple, Hawaiian Punch, Hollywood chewing gum,
and Dentyne (CadburySchweppes.com). The most recent acquisition of Dentyne
came this past December with the purchasing of Adams from Pfizer. This deal
will be discussed in more depth later in the paper.
Directly after their merger, Cadbury Schweppes plc was listed on the
London Stock Exchange. Over the years, though, they had their shares
managed and quoted on the NASDAQ and New York Stock Exchange in the
United States, as well as the Melbourne Stock Exchange in Australia. This
globalization of the company with the distribution of their products, as well as
their shares, has helped to transform Cadbury Schweppes from two separate
companies into a billion dollar business.
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Financial Data:
In referring to Chart #1 at the end of this paper, one can see the income
statement for Cadbury Schweppes over the last 4 years (MultexInvestor.com).
Total Revenues, Gross Profit, and Total Operating Expenses have all increased
over the last three years (1999, 2000, 2001), with Total Revenues showing the
biggest boost by increasing almost 2 billion dollars. However, even though
these numbers have gone up, the Net Income has fluctuated significantly. From
1999 – 2000 this number dropped a considerable amount from $958.7 million to
$618.1 million. It then rebounded to a steady figure in 2001 of $795.7 million.
The price of the stock of Cadbury Schweppes on the New York Stock Exchange
has also fluctuated as well. In 2002, it reached a 52-Week high of $31.91 on
May 6th. However, on February 12th it reached its 52-Week low of $20.50, which
is surprising since many felt that its recent acquisition of Adams from Pfizer
would boost investor interest. This low, though, may be due to outside forces
such as the struggling economy, or the impending war with Iraq and the ongoing
threats of terrorist attacks.
According to several covering brokers from various financial institutions
ranging from Morgan Stanley to Merrill Lynch, there is no real reason to buy the
stock of Cadbury Schweppes at the moment (Yahoo! Finance). Most agree that
one should hold onto their shares, if they have them in the first place. The
comparison to competitors Coke and Pepsi can be seen in Chart #3 at the end of
this paper. Out of six covering brokers, four suggest that you should hold onto
the stock, one thinks you should sell it, and the last feels that it is a strong sell.
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However, out of a scale of 1.00 – 5.00, where 1.00 means to buy and 5.00
means to sell, the average recommendation this week is at 2.9. This is down
from last week’s number of 3.3, but is consistent with their monthly average of
3.0, which is a signal to hold onto the stock. No one really knows what will
happen to the market with war for America looming in the future. Also, Cadbury
Schweppes will undergo a change to its management early in 2003. This could
mean some uncertainty for the company while it undergoes the change, but once
in order it should lead to increased returns (CBSMarketWatch.com). Thus,
holding onto the stock seems like a reasonable decision simply because it does
have the potential to be rewarding.
Management Strategy:
In 1997, Cadbury Schweppes introduced a new strategy in their company
entitled Managing for Value (CadburySchweppes.com). This strategy was
mainly designed so that the company could have a better understanding of their
resources and focus more on the distribution of their products across the world.
Specific financial goals were established, with a conscious effort to concentrate
on increasing their returns, and changes were made in their portfolio. For
example, a decision was made to get rid of their soft drink bottling sector in the
United Kingdom since it was considered a low-return asset. In contrast to this,
Cadbury Schweppes has expanded their market in other areas, such as noncarbonates, by buying Snapple, and American Gum with the purchase of Adams.
Because of this change in the portfolio, and strategic policy, Cadbury Schweppes
has strengthened their hold in both the beverage and confectionery sectors.
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Management Structure and Business Operations:
The management structure of Cadbury Schweppes is currently in the
midst of certain changes that will take effect on February 24th, 2003
(CadburySchweppes.com). It is at this time that Todd Stitzer, the current Chief
Strategy Officer, will be taking over as Non-Executive Chairman. This is due to
the retirement of Derek Bonham, the current Chairman. However, the main
changes in the structure will take place in their regional reporting units, which will
be cut down from ten to five. These regions include Americas Beverages,
Americas Confectionery, Europe Beverages, Asia Pacific, and EMEA
Confectionary (Europe, Middle East and Africa). Each one of these regions will
have a main administrator to watch over them, and these central figures will have
an executive board that they must answer to. The positions that are filled in this
head board are Chief Financial Officer, Chief Legal Officer, Chief Human
Resources Officer, President Global Commercial, President Global Supply
Chain. These changes are expected to help delayer the company, eliminate
various costs, and help to speed up the decision making processes in the various
areas of operation (CadburySchweppes.com).
As one can clearly see from this business structure alone, Cadbury
Schweppes operates in a number of different continents all over the world. Their
North America Beverages market is their largest soft drink market thanks to the
likes of acquiring Snapple, Dr. Pepper/7 Up, and Motts. However, their Europe
Beverages market is no slouch either, ranking number two in mineral waters and
carbonated soft drinks (CadburySchweppes.com). Europe Confectionery mainly
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specializes in the UK region, whereas Americas Confectionery is number one in
Canada. The Asia Pacific area has confectionery businesses in such countries
as Malaysia, China, Australia, and New Zealand and even has a beverage
business in Australia as well. Finally, in Africa and the Middle East, Cadbury
Schweppes ranks one in the confectionery business in Egypt and two in South
Africa. As one can clearly see, Cadbury Schweppes not only operates in
countries all over the globe, but operates successfully. Its new management
strategy should prove profitable as long as the heads of each region continue on
the path that is already laid out in front of them.
II. Industry and Company Strategic Profile
Industry Analysis
In order to get a better understanding of how Cadbury Schweppes is
performing in its industry, it is necessary to examine the company using
Professor Michael Porter’s five competitive forces. These forces show the areas
where the competition between companies is most fierce in a particular industry,
as well as how important these areas are (Thompson & Strickland, pg. 80).
Rivalry Among Competing Sellers
The rivalry among competitors in the non-alcoholic beverage industry is
very strong even though there are only 16 companies. Many reasons can
account for this competitiveness. First, companies in this sector are always
looking to expand their business and reach new customers. This can happen by
tapping a new market by making new drinks, or simply by mergers and
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acquisitions. Cadbury Schweppes is certainly no stranger to mergers since they
have acquired various beverage companies ranging from Dr. Pepper/7-Up, to
Motts, to Snapple. It is only recently, though, that Cadbury Schweppes has
started to get into making new drinks to keep up with its competitors.
Coca-Cola and Pepsi Co. are clearly the biggest names in the industry,
and it has been these two companies that have set the standard for the rest of
the competitors. This is why when these two ventured into the dairy drink
market, and the diet-drink market, Cadbury Schweppes felt the need to do so as
well. Last year, Coca-Cola started producing dairy beverages, including Nestle’s
Choglit and Planet Java drinks. Pepsi Co. also went dairy with their Frappuccino
coffee. Thus, only a month ago, Cadbury Schweppes announced that they will
sell a milk-based beverage called Raging Cow (Houston Chronicle). This drink is
mainly aimed at young adults, and will be marketed in such places as concerts,
college campuses, and even the internet.
Cadbury Schweppes also announced that after a year and a half, its
subsidiary Snapple is finally ready to unveil a new weight-loss drink. This drink is
said by many to “represent the first wave of new products from soda companies
that are aimed at consumers who worry as much about their waistlines as about
flavor” (New York Times). Sure enough, with word of this new drink, industry
powerhouses Coca-Cola and Pepsi Co. announced that they too will be coming
out with diet aid beverages.
Obviously the rivalry between these companies is quite fierce with no one
letting the other tap into a market all by themselves. With businesses that keep
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expanding with new drinks and bigger mergers, this industry is one in where
competition is rampant.
Potential New Entrants:
The non-alcoholic beverage and confectionery industries are both ones in
which it is quite hard to enter into the market and be successful from the outset.
One reason for this is due to the brand preferences and customer loyalty.
Customers like to use products that they are familiar with and that they trust.
Companies like Coke, Pepsi, and Schweppes have been making successful
products for numerous years, and thus are rewarded with customers choosing
their brands over others. This makes it extremely difficult for companies just
entering into the market to gain a loyal following. This may take years to
achieve, and by that point the business may not even be profitable to continue
operations.
Another obstacle new entrants face is the proper access to distribution
channels. Since Cadbury Schweppes is a well-known name, it gains access to
the consumers through wholesale and retail. These retailers would be more
willing to distribute their products, as opposed to a new entrant’s. Therefore, in
order for this new company to get adequate distribution, they would have to
either pay the retailer more, or offer promotional incentives (Thompson &
Strickland). This will end up cutting their profits, which could be a major deterrent
from new companies entering into the market.
Substitute Products:
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Cadbury Schweppes has a unique management strategy when it comes
to dealing with substitute products, and that is that they try to eliminate them
completely. In their beverage area, they started out with various carbonated
drinks such as Dr. Pepper, 7-UP, and Canada Dry. However, over the years
they noticed how popular fruit and dairy drinks were becoming. Thus, they
decided to purchase Snapple entirely, and then use this company to start making
dairy and diet drinks. Other big businesses like Coke and Pepsi have taken a
similar approach, and they even branched off to make their own lines of bottled
water. By eliminating these substitutes and making them their own products, it
has substantially increased the size of their company as well as the amount of
their consumers. It has also made competitive pressures of substitute products
very weak.
Cadbury Schweppes has also taken a similar strategy in their
confectionery industry as well. This became most noticeable with the recent
acquisition of Adams, which helped them to expand and become the world’s
second largest chewing gum company (Wall Street Journal). Adams will now
make Cadbury Schweppes more of a gum and candy company in the
confectionery area, as opposed to a core chocolate business.
Supplier Bargaining Power and Supplier-Seller Collaboration:
The competitive pressures that stem from supplier bargaining power and
supplier-seller collaboration are moderate. Cadbury Schweppes’ products are
distributed all over the world in a vast number of markets. Certain suppliers in
the market form bonds or partnerships with various wholesalers, sports teams,
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and even colleges and universities. An example of this can be seen right here at
Villanova and their partnership with Pepsi products.
Even though Cadbury Schweppes has these partnerships, they are still
always looking for more unique suppliers and better marketing techniques. A
vivid example of this can be seen with their new relationship with EBay. In early
February of 2003, Cadbury Schweppes’ subsidiary Dr.Pepper/7-Up made an
agreement where customers can earn “Liquid Loot” simply by purchasing Dr.
Pepper or 7-Up products (Quicken.com). They can then use this “loot” on EBay
to buy merchandise from the two soft drink companies, such as new soft drinks.
Thus, in an unprecedented partnership, EBay is acting like a supplier for Cadbury
Schweppes. This marketing ploy is an attempt by Cadbury Schweppes to
increase loyalty to their brands and is aimed at a younger “internet” generation.
Buyer Bargaining Power and Seller-Buyer Collaboration:
The competitive pressure from buyer bargaining power and seller-buyer
collaboration is moderate as well. As was discussed earlier, Cadbury
Schweppes has products in numerous countries all over the world. With this
many buyers, it does not really hurt the company that much, if at all, if some
consumers are not happy with the product and switch to another brand. If the
number of buyers is generally small, then a company would surely do anything in
its power to keep these people as loyal customers (Thompson & Strickland, pg.
82). If they left, it could do some damage to the company’s profits. However, in
Cadbury Schweppes case, when you have a great number of subsidiaries
operating in countries all over the globe, losing a couple of customers is not
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necessarily a major concern. This is not to say that Cadbury Schweppes does
not care about those customers who are unhappy. But in the context of running
their billion dollar industry, if a few people do switch brands, chances are it will go
unnoticed.
Company Analysis
In order to get a better understanding of how successful a company is,
many analysts like to institute a SWOT analysis. This identifies the strengths,
weaknesses, opportunities, and threats to the company. When fully examined, it
shows where the business is flourishing, and where they need to put in more
work.
Strengths:
Cadbury Schweppes demonstrates various strengths which help them to
maintain a competitive edge in their industry. One such strength is their powerful
subsidiaries and their cooperative ventures. This is a company that is not afraid
to go out and get what it wants. This can be seen with their abundance of
acquisitions over the years. From acquiring Dr. Pepper/7-Up to gain a strong
edge in carbonated drinks, to obtaining Snapple to get a better edge in the fruit
drink area, Cadbury Schweppes has shown that they usually get what they want.
Also, the recent $4.2 billion purchase of Adams from Pfizer is going to help them
become the largest confectionery business in the world (The Guardian).
Therefore, by taking these financial risks and making bold acquisitions, Cadbury
Schweppes has solidified itself as a major player in not one, but two industries.
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Cadbury Schweppes can also benefit from valuable intangible assets,
such as brand-name image. Most people are extremely familiar with their
subsidiaries, such as Motts and Snapple, and are willing to purchase any new
products they may put out. Thus, since many people know the name and are
loyal to it, it only helps them sell more goods.
Weaknesses:
A major weakness of Cadbury Schweppes will emerge in 2003 as officials
in the company are calling this a “year of transition,” and they very well may miss
their yearly profit target (Yahoo! Finance). As was discussed earlier, starting in
late February, the company will undergo certain changes in their management
structure. Thus, while these changes take place, the day-to-day business
operations may suffer. However, board members did say that once this new
management structure is in order, the company will be able to make better, more
strategic decisions. This will greatly help their profitability. They also warned
about missing their target due to the fact that they are trying to integrate their
new $4.2 billion purchase of Adams into their company. Even though this
purchase most likely will prove to be very profitable, the task of integrating
Adams into the company is still going to be tedious. Therefore, 2003 does seem
to be a glum year for Cadbury Schweppes, but this will be a year in which the
foundation will be set to make much more money in the future.
Opportunities:
For a bold company like Cadbury Schweppes who is not afraid of
acquiring any company as long as it will make them more profitable, the
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opportunities in their industry are endless. We have already seen how this
company is one that not only sees what it wants, but goes ahead and takes it.
With an attitude like this, this company will only continue to expand. Once again,
the acquisition of Adams will prove to open many new doors. Adams is strong
geographically in the United States, as well as in some areas of the developing
world where Cadbury Schweppes is lacking (Wall Street Journal). Also, this
purchase will allow the company to introduce new products in the gum industry,
such as gums with antacids, and teeth-whitening gum. Therefore, this
acquisition alone will lead to many opportunities and open many doors for
Cadbury Schweppes. However, as they continue to expand, they will find other
companies that will be a golden opportunity, and purchase them as well.
Threats:
For an extremely large company that operates in enormously competitive
industries, threats of other companies are always an issue. In competing with
multi-billion dollar industries like Coca Cola and Pepsi, Cadbury Schweppes has
to deal with the threat of new products and brand name loyalty. Through
mergers and acquisitions, and innovative new drinks, they have been able to
keep up with the various lines of products. But Coke and Pepsi are usually the
names that many people associate with soft drinks, and it is something that
poses a great threat to Cadbury Schweppes. Even though they have paid their
dues in the industry, people still favor the other two. This can be seen in their
market capitalization results. Whereas Cadbury Schweppes has a market
capitalization of $10,465.00, Pepsi has a number of $69,529.02, and Coke is at a
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staggering $102, 461.75 (Yahoo! Finance). Thus, more people clearly recognize
Pepsi and Coke brand names over Cadbury Schweppes and this is something
they would like to change.
Another major threat obviously is the impending war with Iraq, and the
threat of other terrorist attacks. Both of these are playing a major role in
investors holding onto their money. Thus, this can be a major reason why
Cadbury Schweppes’ stock has dropped to a 52-week low. War, though, is
simply an external force that Cadbury Schweppes has to overcome as they
continue to try to stay profitable.
III. Implications and New Mission Statement:
Cadbury Schweppes is in two industries, non-alcoholic beverages and
confectionery, which are extremely competitive and offer a wide variety of goods
to consumers. With this in mind, they must continue to grow not only through
more acquisitions, but with developing new products as well. It is only through
this that they will continue to stay competitive and be able to compete with the
likes of Pepsi Co., Coca Cola, and Hershey’s. Therefore, it is my belief that the
mission statement they already have is a decent one, but should be expanded on
to discuss their future objectives. These objectives should cover their
management strategy, as well as their financial status. Hence, I propose a new
mission statement to be as follows:
“Cadbury Schweppes’ governing objective is growth of shareowner value. We
pursue this objective by focusing on our core businesses of beverages and
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confectionery, developing robust and sustainable positions in regional markets,
and growing organically by acquisition. In the future we look to maintain our
strength and leadership in our many locations all over the world. We will
dedicate ourselves to outworking our competitors in order to provide quality
products as we have always done. With a new management structure in tact, we
will make more cost-efficient decisions, which will reap financial rewards not only
for us a company, but for our shareholders as well.”
Cadbury Schweppes, like countless other companies in the world, is
entering into a dynamically-changing new world. With the threat of a possible
war and a hit to the economy, they will have to make more strategic decisions to
stay competitive. However, I believe that with the new management structure in
order, Cadbury Schweppes will continue to grow and remain a powerfully
profitable company.
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