Dr Pepper/7Up Companies, Inc.

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Dr Pepper/7Up Companies, Inc.

8144 Walnut Hill Lane
Dallas, Texas 75231-4372
(214) 360-7000
Fax: (214) 360-7980

Public Company
Employees: 900
Sales: $658.7 million
Stock Exchanges: New York
SICs: 2086 Bottled & Canned Soft Drinks and Carbonated Water

While the best-known names in soft drink manufacturing are Coca-Cola and Pepsi, the third-place manufacturer in the $46.6 billion market is Dr Pepper/7Up Companies, Inc. The result of a 1988 merger of two former rival soft drink manufacturers, today Dr Pepper/7Up Companies, Inc., is the largest non-cola soft drink producer in the world.

Dr Pepper, the elder brand, was invented in Waco, Texas, at Morrisons Old Corner Drug Store. In 1885 a young pharmacist who worked for Morrisons, Charles C. Alderton, experimented on his own soft drink. He mixed phosphorescent water, fruit juice, sugar, and other ingredients to produce a new soft drink unlike any tasted before. With Morrisons approval, Alderton offered the drink to the stores customers. One of these jokingly called the concoction Dr. Peppers drinkfor Dr. Charles Pepper, the disapproving father of a woman Morrison had been courting, suggesting that Pepper might be flattered.

The name and the soft drink, with its tart, yet sweet flavor, became popular locally, and in 1887 Morrison offered beverage chemist Robert S. Lazenby the opportunity to participate in the marketing and development of this new product. After sampling Dr Peppers drink, Lazenby agreed to go into partnership with Morrison to produce the beverage at his Circle A Ginger Ale Company, also in Waco. Alderton, the drinks inventor, dissociated himself from Dr Pepper, opting instead to turn his talents to the pharmaceutical trade.

The new product, Dr Peppers Phos-Ferrates, was available only in soda fountains until 1891, when the manufacturers began bottling the beverage. With Lazenby handling the business end, Dr Pepper became a top seller in and around Texas. Expansion was inevitable, and Lazenby sought a marketing opportunity to introduce Dr Pepper to the world.

The ideal forum was the 1904 Worlds Fair, held in St. Louis. Lazenby and his son-in-law, J. B. OHara, demonstrated their product there, providing samples of Dr Pepper to some of the approximately 20 million Worlds Fair visitors. Incidentally, the 1904 exhibition also showcased other innovations, including the ice-cream cone and buns for hot dogs and hamburgers. Dr Peppers success encouraged Lazenby and Morrison, who founded the Artesian Manufacturing and Bottling Company, which would eventually be renamed the Dr Pepper Company; by 1923, headquarters were moved from Waco to Dallas, Texas.

Around 1920, while Dr Pepper was growing in favor, C. L. Grigg, an advertising veteran of 30 years, had formed the Howdy Company in St. Louis, Missouri. The company was named for the Howdy orange-flavored soft drink Grigg had developed, but the CEO had other ideasspecifically, to invent a new flavor of beverage. For two years, Grigg tested different combinations of lemon and other flavors. By the mid-1920s he had settled on a distinctive lemon-lime formula and in 1929 the Howdy Company introduced the soda to the general public.

Grigg and company were confident of their inventions appeal. As an early sales bulletin noted, consumers are tired of the insipid flavors, and the aftertaste of the heavy synthetic flavors is more objectionable.... So in [our beverage] we have provided seven natural flavors so blended and in such proportions that, when bottled, it produces a big natural flavor with a real taste that makes people remember it.

The only thing that might have stood in the way of the drinks early success was its name, Bib-Label Lithiated Lemon-Lime Soda. Griggs derived the new and much simpler name, 7Up, from the beverages seven natural flavors. The new name first appeared on the bottle later in 1929; it retains that name today. Interestingly, the 7 is spelled out only in corporate communications. The beverage sold well, and the new name made it easy for consumers to remember. In 1936, the Howdy Company became the 7Up Company, and by the 1940s its product became the worlds third-largest selling soft drink.

Although what distinguished both drinks from the rest of the market was unique flavor, neither beverage was marketed simply as a refreshment. Indeed, both Dr Pepper, whose name still retained the period at this time, and 7Up were promoted as health drinks in their first decades. Dr Peppers famous slogan Drink a bite to eat at 10, 2 & 4 capitalized on the idea that one typically experienced an energy slump during those hours; a serving of Dr. Pepper would presumably provide the energy boost needed to make it through the day. At the same time, 7Up boasted in ads that it energizes sets you up, dispels brain cobwebs and muscular fatigue.

The fortunes of both companies grew during World War II, with Dr Pepper able to go public in 1946, while the postwar period saw the Baby Boom, which produced an unprecedented number of soft drink consumers. In their marketing efforts, both beverage companies sought to appeal to this lucrative market. Dr Pepper, for instance, became a regular sponsor of the hit teen show American Bandstand, while 7Up became noted for its uncola campaign of the late 1960s, which capitalized on the individualistic tendencies of young people by distancing 7Up from the cola market.

More recent advertising efforts have avoided the so-called cola wars of the 1980s, focusing instead on what makes Dr Pepper and 7Up different. Dr Pepper ads declare the soft drink is just what the Dr ordered, while Diet Dr Pepper is the taste youve been looking for. 7Up introduced an animated character, Spot, derived from the its long-used logo, a large 7 with a red spot in the middle, that revitalizes the uncola theme that worked so well in the 1970s.

Both companies spent years testing and introducing new products while refining existing ones. Both Dr Pepper and 7Up brought out diet versions by the early 1970s, and as of the early 1990s, the Dr Pepper lineup consisted of Regular, Diet, Caffeine-Free, and Diet Caffeine-Free versions; 7Up had Regular, Diet, Cherry, and Diet Cherry.

While Dr Pepper was traded on the New York Stock Exchange until 1984, when it was taken private in a leveraged buyout, 7Up was a privately owned family business that did not avail itself to public trading until 1967. The two companies joined forces on May 19, 1988, when a merger of holding companies formed the Dr Pepper/7Up Companies, Inc. The combined market strength of the two companies created a stronger contender in the soft drink market, against Coke and Pepsi.

Corporate headquarters are in Dallas, home of Dr Pepper; manufacturing and research facilities are in St. Louis, where 7Up got its start. Dr Pepper is manufactured under the name Dr Pepper USA and is the companys number-one seller, providing approximately 40 percent of total revenue. 7Up USA accounts for 32 percent of the companys sales. Both brands are bottled by independent bottling agents and sold nationwide, primarily in supermarkets, grocery and convenience stores, and other retail outlets.

The Dr Pepper/7Up Foodservice unit, a separate division of the company, handles fountain sales selling Dr Pepper and 7Up to restaurants and to corporate customers for vending machines and cafeterias. Fountain sales account for 19 percent of total sales. Customers have included McDonalds, Burger King, Taco Bell, 7-Eleven, Hardees, and Wendys. Through a licensing agreement with Cadbury Beverages, the company also provides food seryice operators offering Dr Pepper/7Up products the option to sell such brands as Sunkist, Canada Dry, and Tahitian Treat soft drinks.

Another eight percent of the companys sales comes from a wholly owned subsidiary, Premier Beverages, which was formed in 1981 after Dr Pepper Company purchased the rights to Welchs soft drinks. Under its new management, Welchs expanded its product line to include more fruit-flavored soft drinks to complement its Sparkling Grape Soda, which ranked as the number one grape-flavored soft drink in 1992.

In addition to the familiar Welchs name, the Premier product lineup also includes IBC Root Beer, a regional favorite in the Midwest and South. IBC was founded by the former Independent Breweries Company of St. Louis during the height of prohibition, when root beer was a popular alternative to alcoholic drinks. Today, IBC Root Beer is still sold in old-fashioned bottles. The remaining one percent of Dr Pepper/7Ups sales comes from foreign distribution, primarily in Japan, Canada, and Holland. Internationally, company beverages are sold under such brand names as Salute and Big Red.

In 1990 Dr Pepper/7Up entered the sport drink field with Nautilus Thirst Quencher. Like rival Gatorade, Nautilus is promoted as a high-electrolyte, energy-producing beverage to revive athletes. But Nautilus also stood out in its debut as the only major brand sport drink sweetened entirely by aspartame (the artificial sweetener marketed under the name NutraSweet).

With 12 percent of the total soft drink market, Dr Pepper/7Up Companies, Inc., has sought to expand its influence in America and worldwide. The St. Louis research and development plant boasts a completely automated syrup production facility that produces approximately 180 flavors for both company products and numerous private labels. Other manufacturing plants are located in Canada, the United Kingdom, and Japan.

Principal Subsidiaries

Premier Beverages; Dr Pepper/Seven-Up Foodservice.

Further Reading

Annual Report, Dr Pepper/Seven Up Companies, Inc., 1992.

Dr Pepper/Seven Up, Standard NYSE Stock Reports, vol. 60, no. 62, sec. 6, entry no. 771U, Standard & Poors Corp., March 31, 1993.

Dr Pepper/Seven Up Companies, Inc., The Nations Third Largest Soft Drink Company, Dr Pepper/Seven Up Companies.

Susan Salter