What the Doctor Ordered

I was in Texas this week. I have been coming to the Lone Star State every year for the last 15 to meet with clients and do research in the field. Texas is known for Energy, Cowboys, Football and Medicine. MD Anderson consistently ranks #1 in cancer treatment. But, the most famous doctor in Texas might surprise you. The name is Dr Pepper.

When you think of soda, you naturally think of Coke. But the real thing was not the first thing. Officially, Dr Pepper was first, although not by much. Chemist Charles Alderton developed a beverage mix, later named Dr Pepper, which was first served in Waco, Texas on December 1, 1885. John Pemberton’s Coca-Cola was first served May 8, 1886, in Atlanta, six months later. Pepsi hit the scene 10 years later in North Carolina.

Originally, Alderton’s mix was called a “Waco.” Alderton’s day job was making medicines and filling prescriptions. But he lived to experiment. Alderton loved to work the soda fountain, which is where he created Dr Pepper. You could buy the refreshing drink in the Texas heat for a nickel in the 1880s.

With the rampant local popularity and success, his team started mixing the syrup to distribute beyond Texas. A creative idea led to successful execution and Dr Pepper went national, then global.

Natural mineral waters were believed to have curative powers since the Roman period, and the earliest soft-drink makers wanted to reproduce those in the lab. Jacob Schweppe began selling seltzer water in Switzerland in the 1700s. Coke was first sold as a patent medicine in the late 19th century. Pemberton claimed it cured diseases, including morphine addiction, indigestion, nerve disorders and headaches. It’s believed that the early versions of Coke had cocaine as an active ingredient. Pepsi got its name from the root of the word “dyspepsia,” otherwise known as indigestion.

The beverage industry has evolved quite a bit over the years. Drinks were originally filled in glass bottles. Aluminum cans were introduced in 1957. In 1970, plastic bottles hit the circuit. Today, The Coca-Cola Company is the largest beverage company in the world with 85% of its sales coming outside the US.

The annual consumption of soda in the United States rose from an average of 10.8 gallons per person in 1950 to a whopping 49.3 gallons in 2000. You saw that right, gallons. What originally was considered a treat or a digestive aid, became an American staple. But consumption trends are reversing as people recognize the negative health effects of soda. But it’s still high. According to a study, 60% of children and 50% of adults drank a sugary beverage on any given day in 2014, down from nearly 80% percent of children and 61% of adults in 2003.

The beverage industry has responded as consumption trends evolve. They’ve had to. The original sports drink exploded on the scene in 1965. A group of scientists at the University of Florida designed the formula to help rehydrate the football team in the Florida heat. The team was the Florida Gators. The beverage was called Gatorade.

Energy drinks like Red Bull hit the Market a couple of decades ago to popular demand. They are sugary and highly caffeinated.

In 2017, Americans drank more bottled water than any other packaged beverage. Soda’s decline was H2O’s gain. Perrier kickstarted the bottled Water craze in the 1970s and acquired Poland Spring in 1980. In the 1990s, Coke and Pepsi entered the space with the Dasani and Aquafina brands. They are now the top sellers in bottled water. Did you know there’s a $60K bottle of water? Who buys that? I still have no problem drinking out of a garden hose, but suspect that puts me in the minority today.

And who could forget, this very week, in 1985, The Coca-Cola Company rolled out New Coke. It was a total flop and consumers enthusiastically called for a return to the real thing. Just three months later, Coca-Cola Classic returned, and the company has tried to forget about that blown experiment.

Coffee is the most popular drink around the world. Sales took off in the United States with the rollout of premium coffee from the West Coast. Starbucks was founded in 1971 in Seattle by three University of San Francisco students and later changed the way Americans drink coffee. Before Starbucks, Alfred Peet opened a coffee shop in Berkeley which was a huge success for Bay Area coffee drinkers. That was 1965. Among American coffee drinkers, the average person drank nearly 3 cups per day last year. That was the average…

The beverage industry continues to evolve. New flavors, new packaging and new marketing campaigns are always the norm. It’s been that way since the beginning. It starts with an idea. It’s driven by innovation and risk taking. There’s no guarantee for success. Innovation continues with packaging, distribution and logistics. Great ideas with clear plans for execution generally flourish. It’s proven very investable. We are always looking for new, innovative investment ideas. That’s just what the Doctor ordered.

Have a nice weekend. We’ll be back, dark and early on Monday.


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