Since its founding in 1885, Dr Pepper has long been an iconic Texas brand. Last month’s announcement that Keurig Green Mountain plans to acquire the state’s beloved soft drink came as a shock to North Texans.
But many industry experts were not altogether surprised by the merger. Increased distribution channels and cost savings were cited as two major drivers behind the deal.
Associate Professor of Marketing at the University of Dallas, Scott Wysong, Ph.D, unpacks not only the financial benefits this deal has for the new company—Keurig Dr Pepper—but also the strategic reasoning behind this merger and other potential shake ups in the industry.
“I think this is another example of hedging against changing consumer tastes,” explains Wysong. “Soft drink sales have been down for years. Single serve coffee is on the rise. So, it seems to make sense. But, let’s take a step back. Dr Pepper has been about more than soft drinks for many years. They own Mott’s, Bai, and of course, 7Up, Snapple and many other beverage brands. Like Coke and Pepsi, Dr Pepper realized many years ago that consumer tastes were changing and they needed to diversify.”
Dr Pepper’s stock has already reacted favorably to the news, increasing 32% after the announcement. And while this merger makes Keurig Dr Pepper an estimated $27 billion company, that’s still relatively small compared to beverage giants Coke and Pepsi, which are valued at more than $200 billion and $170 billion, respectively.
“Every company is looking for ways to leverage their strengths to bring shareholders more value. And while I can’t predict a future merger or acquisition, I can say that it will probably be something we don’t expect, to some extent, like this deal,” said Wysong.
The question that remains in the minds of so many is “what will this merger mean for Texas?”
While it’s likely that we’ll continue to see consolidation across both the food and beverage industries, Wysong is optimistic about Texas’ future.
“From an image standpoint, it hurts that the parent company and CEO will be headquartered in Massachusetts. But with no state income tax and a strong labor force, companies, like Toyota for example, will continue to look at Dallas/Fort Worth as a place to do business,” said Wysong. “As a native Texan, I love Dr Pepper and fondly remember their “I’m a Pepper” campaigns, but, like Coke and Pepsi, Dr Pepper had to make changes to survive.”