USA: Cadbury Schweppes: hard choices in soft drinks (COMMENT)
As part of its cost saving strategy, confectionery and soft drinks manufacturer Cadbury Schweppes is considering a demerger in the US by separating its soft drinks division from confectionery. The restructuring program is some time away, but if successful, Cadbury Schweppes could expand this strategy globally.
Following Cadbury Schweppes' announcement last week that it intends to cut 10% of its global workforce as part of a wide-ranging cost-saving strategy, incoming chief executive Todd Stitzer has suggested that the soft drinks and confectionery giant may separate its soft drinks business from its sugar confectionery, chocolate and gum division in the US.
In the US, Cadbury Schweppes manufactures Dr Pepper, 7Up and the Snapple range of fruit drinks. Although soft drinks account for almost a third of the group's turnover and half of its operating profits in the US, it has been losing market share in the face of increasingly fierce competition from its rivals PepsiCo and Coca-Cola. Cadbury Schweppes is now ranked a distant third in the highly competitive US soft drinks market.
Following the acquisition of Adams last year for US$4.2bn, Cadbury Schweppes became the largest confectionery manufacturer in the world. The group added gum brands Trident, Halls and Dentyne to its more traditional confectionery brands such as Dairy Milk and Trebor Mints.
The vast restructuring process - if it happens - would take place after the implementation of the company's three-year growth plan. This will involve the loss of 5,500 jobs, or 10% of Cadbury Schweppes' global workforce, as well as the closure of 26 production facilities. The group hopes that this will yield savings of £400m (US$670m) by 2007 that can be invested in new product development and aggressive, innovative marketing.
Cadbury faces very strong, established competition from its rivals, but if its growth plan works, and the demerger is a success in the US, it may well expand this strategy globally and pose a serious threat to its competitors' market shares.
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