You may have seen the headlines: Dr Pepper has now surpassed Pepsi to become the second most popular soft drink in the United States.
While this shift may come as a surprise for many, for those who have been tracking the trends, it’s a story that’s been long in the making. The flagship flavor of Keurig Dr Pepper has narrowly edged out the namesake brand of PepsiCo.
While seemingly slight, this change has significant implications for beverage partnerships and deals within various industries. As businesses navigate this new landscape, understanding the potential impacts and strategies to adapt becomes crucial.
The Rise of Dr Pepper
Dr Pepper’s ascent to the number two spot is a testament to its increasing popularity among consumers. Several factors have contributed to this rise, including successful marketing campaigns, a unique flavor profile that differentiates it from traditional colas, a concerted effort to extend fountain distribution to new properties and strategic partnerships that have expanded its reach.
One of the key elements in Dr Pepper’s growth has been its ability to resonate with younger demographics who are seeking alternatives to the more established cola brands. The brand’s calculated marketing efforts have effectively highlighted its distinctive taste and positioned it as an alternative choice in a crowded market. We also speculate that the country’s recent demographic shifts — with people flocking from all regions into the South, where Dr Pepper has had historic strength — have contributed to the brand’s recent growth.
It’s important to note that while Dr Pepper has replaced Pepsi in the #2 slot, the aggregate portfolio share of PepsiCo brands (Pepsi, Diet Pepsi, Zero, Mountain Dew, Starry, etc.) are still far ahead of the Keurig Dr Pepper portfolio. And, of course, PepsiCo and Keurig Dr Pepper both fall behind the portfolio numbers for Coca-Cola.
Implications for Beverage Deals
The shift in market share brings a new dynamic to the negotiation table. Dr Pepper’s enhanced position seemingly gives Keurig Dr Pepper stronger bargaining power in future beverage deals. Here are some ways this change could impact beverage partnerships:
1. More Competition
With its newfound status, Keurig Dr Pepper may believe it can negotiate more favorable terms in its agreements with various venues, from restaurants to entertainment properties. This leverage could translate into better pricing, more prominent placement in retail spaces, and more significant marketing support from its partners.
Negotiation Note: In most cases, Keurig Dr Pepper doesn’t provide equipment, service or distribution. It’s key to remember that this real value that should factor into the negotiation.
2. Reevaluation of Existing Partnerships
Organizations currently partnered with both Coca-Cola and PepsiCo might find it beneficial to reassess the value of their agreements. Dr Pepper’s rise could spark interest in exploring new or revised deals. For businesses looking to stay ahead of consumer preferences, aligning with a brand on the rise might offer substantial advantages.
Negotiation Note: More competition is always a good thing when it comes to negotiating value, and foodservice operators now have the luxury of three great options. At the same time, cola loyalty and consumption is lower than ever — driving beverage companies to invest further to bolster their brand.
3. An “Insurance Policy” for Consumers
Businesses might consider diversifying their beverage offerings to include Dr Pepper. This strategy could attract consumers who favor the brand and help businesses stay relevant in the shifting market landscape. By offering a broader range of beverages, companies can cater to varied consumer tastes and preferences.
Negotiation Note: For those brands afraid of switching from one primary brand to another, the availability of Dr Pepper provides an “insurance policy” — the chance that soda consumers will be happily satisfied with either Dr Pepper or your primary cola partner are very high.
Strategic Adjustments for Brands
To capitalize on Dr Pepper’s growth, businesses should consider whether it’s worth making strategic adjustments. Here are a few recommendations:
1. Adjust Marketing Strategies
Companies should consider adjusting their marketing strategies to emphasize Dr Pepper. Highlighting the brand in promotions and advertising campaigns can help attract consumers who are increasingly leaning towards Dr Pepper. This shift can also align with current consumer trends and preferences.
Negotiation Note: Of course, promotions like this are commercials for the beverage providers. They should recognize the value of these gestures at the negotiation table. The increase in competition should increases the value for all brands to participate in promotional activities.
2. Expand Product Offerings
Introducing Dr Pepper into the product lineup can be a strategic move. By offering this alternative, businesses can cater to a wider audience and meet the demands of customers looking for variety — leading to an increase in incidence. In fact, studies that show incidence increases when multiple brands are displayed, not just the lead cola. This expansion can also lead to new promotional activities and marketing campaigns that spotlight Dr Pepper.
Negotiation Note: Dr Pepper is not the only strong brand of Keurig Dr Pepper. The beverage giant also boasts of 7-Up, Diet Dr Pepper, Crush, Canada Dry, A&W, Schweppes, Hawaiian Punch, RC Cola and other regional brands — not to mention their Tractor platform. In certain markets, foodservice operators might be surprised at the interest of Keurig Dr Pepper to go all-in on an exclusive or semi-exclusive beverage program.
3. Monitor Consumer Preferences
Understanding the reasons behind Dr Pepper’s growth can provide valuable insights into evolving consumer preferences. Businesses that stay attuned to these trends and adjust their offerings accordingly are likely to capture a larger share of the market. Regular market research and consumer feedback can help in making informed decisions.
Negotiation Note: Dr Pepper is not going to sit on their laurels. They have signaled their intention to continue to grow both brand share and distribution.
Competitive Landscape
The shift in market share is not just about Dr Pepper’s rise; it’s also about PepsiCo and Coca-Cola’s response. As Pepsi falls to third place, it might initiate several strategies to regain its position. These could include enhanced marketing efforts, product innovations, or more aggressive pricing strategies.
1. Enhanced Marketing Efforts
PepsiCo is likely to ramp up its marketing efforts to counteract Dr Pepper’s growth. This could involve high-profile advertising campaigns, sponsorships, and promotions aimed at reinforcing brand loyalty and attracting new customers — particularly focused on their new logo rollout. They will likely shake up teams to seek new ideas and fresh vision to turnaround the trends. At the same time, Coca-Cola will use the recent data to further cement perception that it is the dominant player in the industry while simultaneously fighting the expansion of valves available for Keurig Dr Pepper brands in their semi-exclusive contracts.
2. Product Innovations
Innovation is key in the beverage industry. Pepsi might introduce brand extensions or flavors to capture consumer interest and differentiate itself from competitors. These innovations could attract consumers looking for new and exciting beverage options. All options are on the table for PepsiCo.
3. Aggressive Pricing Strategies
To regain market share, PepsiCo might adopt more aggressive pricing and value strategies — both in the retail space as well as to attract strategic foodservice partners. Offering competitive pricing or special deals could entice customers to choose Pepsi over other brands. Headlines that counter the narrative that their brands are losing ground will be very important for PepsiCo.
Conclusion
The rise of Dr Pepper to the second spot in the soft drink market brings significant changes to the beverage industry. For businesses involved in beverage deals and partnerships, understanding these shifts and adapting accordingly is crucial. Increased negotiation leverage for Dr Pepper, the potential reevaluation of existing partnerships, and strategic adjustments in marketing and product offerings are some of the key areas to focus on.
As the competitive landscape evolves, staying attuned to consumer preferences and market trends will be essential. By leveraging Dr Pepper’s growing popularity and making informed strategic decisions, businesses can navigate this new landscape successfully and capitalize on the opportunities it presents.
Key Takeaways:
- Dr Pepper’s Rise to #2: Dr Pepper has surpassed Pepsi to become the second most popular cola in the USA, leading to increased negotiation leverage in beverage deals.
- Reevaluation of Partnerships: Businesses with existing Pepsi and Coca-Cola contracts may consider exploring new or revised agreements with Dr Pepper to align with its growing popularity.
- Strategic Marketing Adjustments: Companies who target similar demographics to KDP should observe KDP’s marketing strategies and catering to current consumer preferences.
- Competitive Response: PepsiCo might respond with enhanced marketing efforts, product innovations, and aggressive pricing strategies to regain market share.
Additional Resources:
What Subway’s Switch to Pepsi Means for the Industry
Do Companies Really Switch Soft Drink Providers?
Top 50 QSRs: Coke, Pepsi or Dr Pepper?
