Expansion of Peafiel USA

By: Group B12 Missy Anderson, David Byrns, Jie Lai, & Jordan Williams

Opportunity to Capitalize on Growing Mexican-American Population

The Mexican-American population poses a tremendous sales opportunity for DPS: 1. The Mexican-American population is growing rapidly in the United States 2. They spend 3% more on beverages than the general population 3. DPS has strong brand recognition with the Mexican-American consumer 4. They spend ~$449 (0.90%) of their annual expenditures on non-alcoholic beverages

Background

Marketing

Distribution

Promotional Strategy

Finance

Summary

Assessed DPS Portfolio to Determine Best Product Market Fit

Determined that the existing Peafiel brand was best positioned to meet the Mexican-American need in the United States. 1. Has strong brand recognition with the targeted population 2. Allows target audience to maintain Mexican tradition in US 3. Is a healthy, low calorie beverage aligns with the Hispanic lifestyle 4. Strong equity in flavor

Background

Marketing

Distribution

Promotional Strategy

Finance

Summary

Peafiel Brand Under-Utilized in the US Marketplace

Peafiels has only been limitedly launched in the US, leaving many markets under-served.
Past Launch Strategy:
Launched in 2007 Distributed in six major US cities Sold at major retailers Introduced five flavors Available in 16.9 oz and 2 liter bottles for $1.99 and $3.95 (retail)

Successes:
Product continues to be sold in the US

Challenges:
Lack of product visibility and awareness in the marketplace Difficult to locate product to purchase in stores Product often sold out
Background Marketing Distribution Promotional Strategy Finance Summary

Expand Peafiel Presence in the USA

Implement and execute an integrated strategy to expand the presence of Peafiel USA.

Marketing New Vision:

Distribution

Finance

Build awareness through integrated marketing approach Align distribution and marketing strategy Actively monitor marketing, distribution, and financial plans to meet objectives Propose test deployment of strategy to four cities: Chicago, Dallas, Houston, and LA

Background

Marketing

Distribution

Promotional Strategy

Finance

Summary

Unacculturated + Bi-Cultural Mexican Americans Looking for Flavored Beverage Options

Peafiels target: Lupe Gonzalez
Mom

Caregiver

Key Influencers: Kids Community Advertising Quality Freshness Tradition

Host

Community Builder

$49K

Cost < Love $449 Spend

Urban

Critical Mass

Background

Marketing

Distribution

Promotional Strategy

Finance

Summary

6 Beverage Categories Competing for Lupes Dinner Table

Mapping out the competition $50.5 billion sales, Non-Alcoholic
Latino Beverage

Trends: Sales Private label 21.4% of total Fruit juice fell 4.1% Juice drinks rise 6.6% Coke $14.4 billion Pepsi & Coke decline 8% Carb. Bev. decline 0.5% Growth The bev. market grew 6% H20 volume growth, 10% H20+ segment to grow 39% Market Share 99.2% sales in sports drink segment from 2 brands

Sports Drinks

Enhanced Water

Private Label Fruit Juice

Soda

Background

Marketing

Distribution

Promotional Strategy

Finance

Summary

Positioning Peafiel for Success in a Competitive Market

Peafiel, a beverage that nurtures family, body, and culture
Natural Less Sugar Naturally Rehydrates AntiOxidants

Family

Body

Culture

Authentic Familiar Brand Flavor

Background

Marketing

Distribution

Promotional Strategy

Finance

Summary

Where Lupe will Find her Peafiel

A familiar price and aisle Placement in Independent Grocers Meets service needs Aligns with customer characteristics Lower Shelving Costs
*If Successful, Long Term push for Big Box Retailers

Placement in Vending Machines Higher profit margins Strategically placed, non-aisle option Pricing Peafiel $4.99 6 pk. $1.99 16 oz. $3.95 2 L.
Background Marketing Distribution Promotional Strategy Finance

Pricing Jarritos Vs. Vs. Vs. $1.99 12.5 oz. $2.47 13.5 oz. $3.95 1.5 L

Summary

Transporting Peafiel to Lupe

1. Manufacture 2. Import to US & Transport to DC 3. Sell to Wholesalers 4. Sell to Retailer 5. Purchased by Customer

+3 35 38

+$1.11 $1.49

+37 $1.86
$2.50

+62 $2.33
$2.33
$2.00

Manufacturing: San Nicholas, Mexico Distribution Centers: 35% Victorville,CA 65% Plano, TX Target Markets: Chicago Houston Dallas LA

$1.50

$1.00

$0.50

$0.00 Margin Break Down

Background

Marketing

Distribution

Promotional Strategy

Finance

Summary

Promoting Peafiel Over 5 Years

Y1. Raise Brand Awareness, Y2-5. Drive Sales, Ease Discovery Build the Brand Equity
Integrated Marketing ($721,920.59) Year One +1 ($459,069)

Y5: 1.75%
Of Wallet on NAB

Launch Sales Team ($406,666)

Incentives & Equity ($2,300,000)

3.5 u
Units per Household Per Year.

Digital Campaign (250 hours)

Product Integration ($100,000)

$7.86
Annual Spending

Background

Marketing

Distribution

Promotional Strategy

Finance

Summary

Peafiel, Good for Lupe and Good for Dr. Pepper

Key Takeaways:
Conservative market share assumptions Impressive Revenue Growth Strong operating margins Low capital intensity drives strong cash returns flows and solid
Market Share Net Revenues NOPAT Cum Capital Investment Free Cash Flow Year 1 0.75% $2,461,880 -$359,233 $660,000 -$953,758 Year 3 1.25% $4,268,901 $504,190 $1,160,000 $117,724 Year 5 1.75% $6,217,910 $729,862 $1,160,000 $895,232

Background

Marketing

Distribution

Promotional Strategy

Finance

Summary

Expanding Peafiel to the US, Increases Shareholder Value

Worst Case
Year 1 Market Share Year 5 Market Share Net Present Value (NPV) Internal Rate of Return (IRR) Average Project ROIC Final Project ROIC DPS WACC DPS ROIC 0.25% 1.25% ($123,940) 2% 18% 55% 5.45% 12.50%

Base Case
0.75% 1.75% $929,990 38% 39% 77%

Best Case
1.25% 2.25% $1,983,920 90% 60% 99%

Background

Marketing

Distribution

Promotional Strategy

Finance

Summary

Evaluating Risks and Evaluating Success

Risks:
Marketing message fails to resonate with our target audience Competitors enter the marketplace and target the Mexican-American population Strength in the Mexican peso relative to the US dollar 1% increase in the peso decreases base case NOPAT by 2.3% Relationships with distributors weaken

Key Metrics to Monitor:

Market share Brand awareness Customer satisfaction and loyalty

Background

Marketing

Distribution

Promotional Strategy

Finance

Summary

Peafiel Expansion Tastes Like Success

The Peafiel expansion project should be undertaken for the key reasons: Fulfills opportunity in the marketplace with a rapidly growing consumer base Leverages the brand equity of a well-established brand Benefits the greater DPS portfolio Creates shareholder value and results an NPV for DPS Reallocates open Mexican capacity to the US market

Background

Marketing

Distribution

Promotional Strategy

Finance

Summary

Appendix

Marketing

Marketing
Cost vs. Spend $3,360,610 in our marke:ng budget to generate $21,521,983 in sales. $1 cost generates $6.4 spent Year 1 Marketing Spend+Plan SEO &Adwords (28) Aggregate Content (12) Google Maps (40) Mobile Friendly (160) Build relationships with ind. grocers Ensure Stocking ($6,666) Targeted Giveaways ($634,000) Hispanic News ($48,000) Text Messaging Ads ($111,000) Year 2-5 Marketing Spend+Plan Maintain Portion of Digital Initiatives Reduce Newspaper Ads Maintain Sales Team Get Out of Home ($20,000) In-Store Coupons Cross Promotions with Barcel Chips (2,300,000) Product Integration in Spanish Television (100,000) Mintel Hispanic Shopping and spending patterns US Feb 2008 With the exception of expensive items, 65% Hispanics shop at favorite stores and 67% said the stores environment makes a difference whether they shop 57% of base said they only shop at favorite stores which have brands I like. Mintel concluded Hispanics enjoy shopping together and browsing as a means of acculturating Groups of shoppers learn together and make collective decisions about where to shop and what to buy Mintel concluded that Foreign born Hispanics are more likely to have a greater affinity for marketing, and they rely on iconography when navigating the grocery store. Mintel found Quality or taste and Freshness were the two attributes that influenced Hispanic shopping purchases (4.76, 4.74). Qualitative MillerCoors research, Jewel-Osco feels too white Mintel Non-Alcoholic Beverages The Market US April 2011 67% drink some kind of water 84% drink some kind of soda. 92% drink some kind of juice (81% Hispanics compared to 74% non-hispanics to drink orange juice)

Distribution: Transportation Expenses

Main Assumptions of Transportation Volume: Year 1: 2.79 million bottles Year 2: 3.80 million bottles Year 3: 4.84 million bottles Year 4: 5.92 million bottles Year 5: 7.05 million bottles 35% Victorville, CA 65% Plano, TX Flatbed truck load (45,000lbs): *$1.65/mile Flatbed truck diesel mileage: 5miles/gallon Flatbed truck drivers salary in CA: $71,000/year Flatbed truck drivers salary in TX: $65,000/year Number of working hours per year: 2000

* From Flatbed truck load market price index: http:// www.flatbedsource.com/truckload-market-priceindex

Distribution: Peafiel Supply Chain Channel

Manufacturing (Bottling):
Penafiel was bottled at San Nicholas, Mexico, 1 mile from the town of Tehuacan, the source of Penafiel water.

Import to U.S:
Under NAFTA, bottled water was transported to 2 biggest DCs in Victorville, CA and Plano, TX by truck load. It was then distributed to more than 200 DCs across the state. Penafiel was sold to various retail channels.

Transportation Cost (Mexico U.S):

35% Victorville, CA 65% Plano, TX
Main DCs: Victorville, CA; Plano, TX 3PL: Pepsi, Coca-cola, etc.

Transportation Cost per bottle: Yr 1/2/3/4: $0.027

Yr 5: $0.028

Distribution: DPS Retail Channel

DPS serves consumers through various dealers
Wholesalers: Costco Supper Market: Wal-Mart, Kroger, Safeway, AHOLD NV, Publix ,etc. Retailer: Target, Walgreen, SuperValu, Seven & I Holding, etc. Fast Food: McDonalds, Wendys, Burger King, Yum! Brands, etc. Drugstore: Rite Aid, CVS, etc. 3PL: Coco-cola, Pepsi, etc.

Financials

Financials

Financials

Work Citied
1.) Mintel Hispanic Shopping and spending patterns US Feb 2008 2.) Mintel Non-Alcoholic Beverages The Market US April 2011 3.) http://www.nytimes.com/2011/08/29/business/media/product-placements-find-fresh-territory-in-telenovelas.html 4.) http://www.pewhispanic.org/2011/02/09/latinos-and-digital-technology-2010/ 5.) http://articles.cnn.com/2011-05-20/tech/hispanic.mobile.engagement.gahran_1_cell-phones-mobile-technology-text-messaging?_s=PM:TECH 6.) http://www.nytimes.com/2011/09/20/business/media/jarritos-the-mexican-soda-tries-to-move-beyond-its-base-advertising.html 7.) http://www.drpeppersnapplegroup.com/ 8.) http://grupopenafiel.com.mx/ 9.) Bloomberg Research 10.) Factset Research 11.) Bernstein Research 12.) BBH Research 13.) hNp://www.youtube.com/watch?v=-hpy8UCeN_Y 14.) hNp://www.youtube.com/watch?v=LA_Q_ZHfOw0 15.) hNp://www.youtube.com/watch?v=6Wbp4-ZhNAE 16.) hNp://www.youtube.com/watch?v=BH3rRj1YB8U 17.) hNp://www.youtube.com/watch?v=nMidgWu0ebQ 18.) hNp://www.deguate.com/ges:on/ar:cle_6695.shtml 19.) hNp://sobdrinks.drinks-business-review.com/news/pepsiamericas_forms_jv_with_cabcorp_200509 20.) hNp://www.alegrofoods.com/mexicansobdrinksandsodas.aspx 21.) hNp://www.terra.com.mx/revistaneo/ar:culo/460257/Aguas+con+Cadbury.htm 22.) hNp://www.echo-media.com/targetList.php?targetID=89 23.) hNp://www.buenasuerte.com/ 24.) US Bureau of Labor Statistics 25.) hNp://mejoresmarcas.hsmglobal.com.mx/categorias.php?id=cat_refrescos 26.) hNp://impreso.milenio.com/node/7111215 27.) 2010 US Census Data