Snapple 2011 Annual Report Download - page 28

Download and view the complete annual report

Please find page 28 of the 2011 Snapple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

8
Agreement with Coca-Cola
On October 4, 2010, we completed the licensing of certain brands to Coca-Cola following Coca-Cola’s acquisition of Coca-
Cola Enterprises' ("CCE") North American Bottling Business and executed separate agreements pursuant to which Coca-Cola
began offering Dr Pepper and Diet Dr Pepper in local fountain accounts and the Freestyle fountain program.
Under the licensing agreements, Coca-Cola distributes Dr Pepper in the U.S. and Canada Dry in the Northeast territories
where these brands were formerly distributed by CCE. The same applies to Canada Dry and C Plus in Canada. As part of the U.S.
licensing agreement, Coca-Cola offers Dr Pepper and Diet Dr Pepper in its local fountain accounts. The agreements have an initial
period of 20 years with automatic 20-year renewal periods, and requires Coca-Cola to meet certain performance conditions.
Under a separate agreement, Coca-Cola has agreed to include Dr Pepper and Diet Dr Pepper brands in its Freestyle fountain
program. The Freestyle fountain program agreement has a period of 20 years. Additionally, in certain U.S. territories where it has
a distribution footprint, we are selling certain owned and licensed brands, including Canada Dry, Schweppes, Squirt and Cactus
Cooler, that were previously distributed by CCE.
Under these arrangements, we received a one-time nonrefundable cash payment of $715 million, which was recorded as
deferred revenue and will be recognized as net sales ratably over the estimated 25-year life of the customer relationship.
Customers
We primarily serve two groups of customers: 1) bottlers and distributors and 2) retailers.
Bottlers buy beverage concentrates from us and, in turn, they manufacture, bottle, sell and distribute finished beverages.
Bottlers also manufacture and distribute syrup for the fountain foodservice channel. In addition, bottlers and distributors purchase
finished beverages from us and sell them to retail and other customers. We have strong relationships with bottlers affiliated with
Coca-Cola and PepsiCo primarily because of the strength and market position of our key Dr Pepper brand.
Retailers also buy finished beverages directly from us. Our portfolio of strong brands, operational scale and experience in the
beverage industry has enabled us to maintain strong relationships with major retailers in the U.S., Canada and Mexico. In 2011,
our largest retailer was Wal-Mart Stores, Inc., representing approximately 14% of our consolidated net sales.
Seasonality
The beverage market is subject to some seasonal variations. Our beverage sales are generally higher during the warmer
months and also can be influenced by the timing of holidays as well as weather fluctuations.
Competition
The LRB industry is highly competitive and continues to evolve in response to changing consumer preferences. Competition
is generally based upon brand recognition, taste, quality, price, availability, selection and convenience. We compete with
multinational corporations with significant financial resources. Our two largest competitors in the LRB market are Coca-Cola and
PepsiCo, which collectively represent approximately 62% of the U.S. LRB market by volume, according to Beverage Digest. We
also compete against other large companies, including Nestlé, S.A. ("Nestle") and Kraft. These competitors can use their resources
and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing new products, reducing
prices or increasing promotional activities. As a bottler and manufacturer, we also compete with a number of smaller bottlers and
distributors and a variety of smaller, regional and private label manufacturers, such as The Cott Corporation ("Cott"). Smaller
companies may be more innovative, better able to bring new products to market and better able to quickly exploit and serve niche
markets. We have lower exposure to some of the faster growing non-carbonated and the bottled water segments in the overall LRB
market. In Canada, Mexico and the Caribbean, we compete with many of these same international companies as well as a number
of regional competitors.
Although these bottlers and distributors are our competitors, many of these companies are also our customers as they purchase
beverage concentrates from us.