Cadbury returns to base: Cadbury Schweppes is to concentrate on its core confectionery business by selling much of its soft-drinks operations. Lisa Campbell reports on the likely repercussions

Cadbury Schweppes’ decision to sell its soft-drinks brands outside

the US to Coca-Cola will allow the company to concentrate on its core

confectionery interests.

The deal, which is subject to regulatory approval, will see Schweppes,

Dr Pepper, Canada Dry, Crush, plus UK brands including Kia-Ora and Oasis

move over to the cola giant in more than 120 countries from the middle

of next year. The pounds 1.12bn deal excludes South Africa and France,

pending Coca-Cola’s attempted acquisition of Orangina.

The deal has already thrown into question Cadbury Schweppes’ Sunkist

brand, which competes with Coca-Cola’s Fanta. Coke is keen to buy

Sunkist, although this is subject to agreement. However, it is not known

if Sunkist would survive as a sister brand to Fanta.

All 450 Schweppes employees are to be offered jobs with Coca-Cola.

However, approval may take months; if granted, Coca-Cola would then have

to decide how best to integrate managements.

Ad arrangements have not, as yet, been considered. Dr Pepper is handled

by the US office of Young & Rubicam and adapted to the UK. The agency

also creates ads for Schweppes. Last week, TBWA GGT Simons Palmer was

appointed to handle Oasis.

However, insiders are pointing to the fact that Coca-Cola likes to keep

its agency assignments within its roster of Lowe & Partners in New York,

Edge Creative, Publicis and Wieden & Kennedy.

The rationale is clear. Cadbury Schweppes’ pounds 56m trading profits

from drinks last year contributed 9% to the group’s profits. However,

the market share of beverages within Europe averages just 3%.

’Our market share outside the US is low. We do not have the critical

mass to set up the infrastructure for further development,’ said David

Kappler, Cadbury Schweppes’ finance director.

One of the problems has been the complex route to market.

Cadbury Schweppes sold its 51% stake in UK bottler Coca-Cola Schweppes

Beverages to Coke in February. Despite EU restrictions on CCSB to ensure

that Cadbury Schweppes could market through its distribution network,

the relationship has been fraught.

Of Cadbury Schweppes’ production, 33% is distributed by Coke bottlers,

29% by itself, 22% by independents and 16% by Pepsi.

Cadbury argues that the business is of greater value to Coca-Cola with

its distribution structure. It also offers Coke a portfolio of non-colas

across Europe.

’These agreements will allow Coca-Cola to participate in segments of the

beverage business where it currently does not have meaningful entries,’

said M. Douglas Ivester, Coca-Cola CEO.

Cadbury Schweppes argues that the deal lets it concentrate on its

European confectionery market and on its US beverages. Dr Pepper

Seven-Up (DPSU) is the third biggest soft-drink vendor with a 15% US

market share.

Although the company denied that it would eventually dispose of its US

business to become solely a food operation, it admitted that the shift

in emphasis across Europe may lead to a name change.

The agreement, which also puts non-US bottling operations up for sale

with a value of pounds 500m, gives Cadbury Schweppes the resources to

make acquisitions in confectionery - a market it perceives as offering

more opportunities in Europe than soft drinks.

’Expansion, development and acquisition lie more with the global

confectionery market, where there are more opportunities for

consolidation,’ said chief executive officer, John Sunderland.

Sir Dominic Cadbury added that certain family-owned confectionery brands

would find a natural home within the family culture of Cadbury

Schweppes.

Such brands may include Ferrero Rocher.

The company also sees sugar confectionery as a growth market and is

concentrating on Trebor Allan in Canada - a major supplier to the US

market.

UK BRANDS MOVING TO COKE

- Schweppes and Canada Dry Mixers.

- Dr Pepper.

- Oasis.

- Kia-Ora.

- Malvern water.

This article was first published on Marketing