How Dr Pepper Became #2

Asked the most popular soda (or pop depending on where you live), you would probably say Coke and then maybe Pepsi.

Now though, you would have to add Dr Pepper (no period after Dr since the 1950s).

Dr Pepper

Our story starts in 1885 in a Waco, Texas drug store where a pharmacist mixed some syrups at the soda fountain. His name was Charles Alderton, not Dr. Pepper. Originally called Waco, it had a secret blend of 23 flavors. No one is positive of why they changed the name to Dr. Pepper.

Waco was created in the Old Corner Drug Store:

Soon after, Coke and Pepsi hit the market. The difference though is that Dr Pepper remained a local brand in the South and Southwest while Coke and Pepsi each established a national (and international) network of bottling plants for their syrup.

Fast forwarding to now, the Dr. Pepper 23-flavor blend is what helped it become #2. No, not because it was so appealing (I am not a Dr. Pepper lover). Different from Coke and Pepsi, Dr. Pepper was an uncola that bottlers with a Coke or Pepsi non-compete agreement could still sell according to a 1963 court decision. As a result, wherever you had Coke or Pepsi (it could not be both), you had an alternative. In addition, a company executive says new flavor varieties propelled its growth.

We could say that it took 60 years for the strategy to work. And we would be oversimplifying if we did not add that it has been a bumpy road to the top. In 1981, after rising to the #3 slot behind Coke and Pepsi, with too much debt, it was close to bankruptcy. Today, with a slew of other brands that include 7up, Dr Pepper is a part of Keurig Dr Pepper.

Our Bottom Line: Oligopoly

Coke still has close to 20% of the soft drink market:

Economists call the soft drink market an oligopoly. As a market that has several large, mass producing dominant firms and many customers, market entry and exit are difficult. Competing in an oligopolistic market, it is crucial for the three leading companies to achieve product differentiation through non-price competition.

On a competitive market structure continuum showing ascending firm power, oligopolies are closest to monopoly because of their size and pricing power:

Concluding, we can say that at #2 Dr Pepper became a leader in pop culture (unless you say soda).

My sources and more: Thanks to The Journal podcast for inspiring today’s post. Then, for more of the Dr Pepper story, you could take a look here, here, and here. And, in a past post, econlife had more about cola wars. But finally, for much more, the Texas State Historical Association has a detailed history of Dr Pepper.