Soda Giants Compared:How KDP's AR Approach Stacks Against Coca-Cola and PepsiCo

An analysis of how Dr Pepper, Coca-Cola, and PepsiCo stack up on four key accounts receivable metrics.

Keurig Dr Pepper (KDP) was formed in 2018 by the merger of Keurig Green Mountain and Dr Pepper Snapple.

Today, it is the third-largest soda brand in the US. It owns several KDP brands including 7UP, Crush, Dr Pepper, Schweppes, and Canada Dry. Yet, it isn’t as much talked about as Coca-Cola and Pepsi, the #1 and #2 players respectively.

The most asked question on the internet, apart from "Who owns Dr Pepper?", is how KDP's AR approach stacks against its competitors.

In this article, we compare KDP against its larger peers on some critical Accounts Receivable (AR) metrics. We look at how it achieved its financial goals with a streamlined AR process.

Ambitious growth targets

After the merger in 2018, KDP laid out some ambitious financial targets:

• Maintain net debt to EBITDA ratio at less than 3x
• Generate sufficient free cash flow to deleverage quickly 
• Deliver double-digit EPS growth

In 2022, KDP had an operating cash flow of $2.7 billion. Its debt leverage ratio was less than 3X in both 2021 and 2022.

Managing AR effectively was key to achieving its cash flow goals.

KDP grew net sales at ~14.6% CAGR between 2018-2022, much faster than the expected industry average (3% – 6%). Its peers Coca-Cola and PepsiCo grew at 5% and 6%, respectively.

*While KDP registered positive growth during all the five years, it had exceptional growth in 2019 (almost 50% YoY).

KDP streamlined its AR operations to manage its growing revenue and receivables (~30% YoY in 2022).

Who Owns Dr. Pepper? Dr. Pepper is owned by Keurig Dr. Pepper, a publicly traded company, since 2018. KDP was formed as a result of a merger between Keurig Green Mountain and Dr. Pepper Snapple Group, and it is one of the leading beverage companies in North America.

KDP’s AR Management: From Outsourcing to Automation

KDP (Dr Pepper) initially outsourced their AR management. But it resulted in significant overhead costs, higher write-offs, and late payments.

They moved the operations back in-house and used six sigma methodologies to standardize the processes, eliminate waste, and track key metrics. They also employed software solutions to automate non-value tasks.

KDP Leveraged Automation for Collections and Cash Application

The two key AR functions that KDP transformed in-house are collections and cash application.

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From time-consuming, ineffective manual processes that didn’t let them complete their everyday tasks, the team became super-efficient, supported by automated workflows.

Here’s a snapshot of their AR transformation results.

Before AR transformation	After AR transformation
No worklists to help analysts prioritize accounts and tasks	AI-powered worklists that enabled analysts to prioritize daily collection tasks
Delays in accounting for incoming customer payments, leading to inaccurate cash positions and customer dissatisfaction	Automated remittance capture and invoice matching saved time, supported accurate data entries, and a 75% increase in team productivity
Many FTEs were required to complete the AR processes, yet inefficiencies existed	Despite a 19% increase in the volume of payments, 56% of cash application FTEs could focus on higher value-adding tasks.

These initiatives helped Dr Pepper company lower its DSO by 25%, save ~$2.5 million in costs, and grow its cash flow.

AR metrics of the top 3 soft drink companies

KDP’s streamlined AR processes have helped it match its larger peers in terms of AR metrics. Here’s a comparison of KDP vs Coca-Cola vs PepsiCo on key AR metrics.

1. Accounts Receivable Turnover (ART) ratio

The accounts receivable turnover ratio measures the number of times a company is able to collect its receivables during a period. A higher value indicates more efficient collections.

All three companies had comparable average accounts receivables turnover (ART) ratios, with Coca-Cola finance doing better than the others, followed by KDP.

2. Days sales outstanding 

DSO is the average number of days it takes to collect receivables. The average DSO for the three companies during 2018-2022 was between 35 – 37 days.

KDP had the lowest average DSO.

This is slightly less than the industry average which is about 40 days. Being the top players in the beverages industry, they seem to have an advantage over small soda companies in collecting receivables and dictating credit terms.

3. Cash conversion cycle

The beverages industry has a negative cash conversion cycle. This means that it pays its suppliers much later after receiving payment from its customers. 

The average cash conversion cycle for KDP was about -60 days. Both Coca-Cola and PepsiCo had longer negative cash conversion cycles (~-95 days), indicating their better bargaining power with suppliers.

4. Bad debt to sales ratio

Dr Pepper maintained 0.61% of its total AR amount as allowance for credit losses in both 2022 and 2021. Its bad debt to sales ratio was around 0.01%, which is better than that of an average company.

PepsiCo also had a similar bad to sales ratio as KDP. But it maintained a higher allowance for credit loss to AR ratio (1.5%). The company’s operations across various global regions, particularly beyond the borders of the US, are liable to increase its credit risk.

Coca-Cola had almost 3X more in allowance for credit losses than PepsiCo. While Coca-Cola doesn’t mention its receivables write-off amount, it uses AR factoring to collect payments. In 2022, the company sold more than $10,700 million under factoring. 

2023 for Dr Pepper

KDP expects net sales to grow 5% and EPS to grow by 6% – 7% in 2023. The launch of new products and pricing strategies driven by macroeconomic trends (inflation) may help it meet its guidance.

Its streamlined accounts receivable management processes can help it achieve cash flow efficiencies even under uncertain economic conditions.