Growth and innovation
Growth
We are growing both our confectionery and our beverages businesses.
Confectionery In the confectionery market, our global market share has grown through acquisition and organic growth. In 2004, we became market leaders with a 10% market share. In 2005, revenues of our confectionery businesses grew by 6.3%. Sales in emerging markets represented 30% of our confectionery sales, and accounted for 55% of our confectionery growth.
Beverages In our beverages business revenues grew by 6.2% in 2005. The growth was led by innovation, investment and execution around our core brands in the Americas and Australia. Our carbonated soft drink business in the US is a good illustration of this growth. The business gained 40 basis points of market share in 2005. Dr Pepper, our biggest carbonated soft drinks brand, was the only major carbonated soft drink brand in the US to grow. This growth was driven by the success of Cherry Vanilla Dr Pepper. In our non-carbonated soft drinks, we concentrated on revitalising our core brands.
Investing to meet consumer needs
Our economic success and our ability to benefit our shareowners and stakeholders depend upon our meeting consumer needs.
We are investing in growth and capability related initiatives, including innovation, information technology, science and technology, commercial and sales force capabilities and the understanding of our customers. These enable us to meet consumer needs better. In 2005, we invested an additional £75 million in growth and in initiatives related to capabilities.
The savings we are making as part of our Fuel for Growth cost saving programme allow us to increase our investments in the business. We delivered savings of £90 million in 2005. Savings have come from a large number of efficiency initiatives.
Our focus on generating free cash flow and making efficient use of capital is also allowing us to make investments in new businesses and assets. Acquisitions include Dan Products, a South African gum business, and further stakes in our businesses in Turkey and Nigeria.
Investments in our existing businesses include the construction of a £70 million green field gum factory in Poland, to be complete by 2008, a US$40 million gum Science and Technology Centre at Hanover Park, New Jersey, US, and £40 million in chocolate making in Bournville, UK.
The sale of Europe Beverages in early 2006 for £1.26 billion allows us to reduce our debt and invest in those businesses with higher potential for growth and returns. We expect to realise up to a further £400 million by the end of 2007 from the sale of businesses which we regard as non-core, and from surplus properties.
Innovation
We believe that identifying consumer needs and innovating our products to address these needs is an important driver of our growth. In 2004 we undertook a new Global Consumer Segmentation study and in 2005 we launched Building Commercial Capabilities, our people development programme, at a combined cost of over £15 million. Together these give us a common method of analysing what our consumers want and common tools and processes for developing our brands and products.
We have set an internal stretch target for 2007 of 15% of our sales to come from innovation, an increase from our 2005 innovation to sales ratio of 10%, and up from 6% in 2003.
An example of innovation in 2005 was the launch of centre-filled- gum. This is the first pellet gum with a liquid centre aimed at adults. When chewed, the new gum gives three different textures and some great flavour combinations: an outer candy crunch, the chewing gum and the liquid centre. All of our confectionery regions collaborated on the development of the new gum. It was launched across multiple markets in 2005 in Europe and North America, with different flavours tailored to local market needs, and under different local brands such as Trident, Stimorol and Hollywood.
Other innovations also helped drive the growth of our gum brands in 2005. These have included innovation in packaging, such as the re-sealable packs for Trident and Dentyne; new formats such as a soft-slab variant to the Dentyne range, and novel flavours, for example, Trident Tropical Twist. Worldwide, our Trident brand grew 21% in 2005.
In beverages, Cherry Vanilla Dr Pepper, launched in 2004, has been a notable innovation. It has been successful in bringing new customers to the franchise, particularly outside Dr Pepper’s traditional heartland markets in the south of the US. Four out of five of the top-selling areas for diet Cherry Vanilla in 2005 were outside these markets.
Creating a Masterbrand – Cadbury Dairy Milk
We believe that listening and responding to the views of our consumers is important if we are to continue long-term sustainability of our business and our responsibility for wealth creation. Cadbury Dairy Milk illustrates how we respond to our consumers through innovation and transferring learning between our world markets.
2005 marked the 100th anniversary of Cadbury Dairy Milk. We have now created a Masterbrand that makes the most of Cadbury’s unique heritage in moulded chocolate in UK and Commonwealth markets.
The Masterbrand concept was developed in Cadbury Schweppes Australia building on research that showed that for the Australian consumer Cadbury Dairy Milk is synonymous with chocolate. This gave us confidence that the brand could have wider appeal. As a result, a whole new range of products with new fillings was created to satisfy the demands of consumer tastes and desires.
Following its success in Australia, the Masterbrand concept has been rolled out in key Cadbury Dairy Milk markets, and has led to strong growth in the brand in 2004 and 2005. It was launched in Australia in 2002, in the UK and Ireland in 2003 and 2004, and in Canada and South Africa in 2005. Sales of Cadbury Dairy Milk grew by 8% in 2004 and 7% in 2005.
