Analyst salutes Coke's 'bold' $1.25bn move into pod-based CSDs
The move, announced by GMCR in its FY 2013 results, sees Coke buy a 10% stake in the company for $1.25bn, and the partners will make pods for use in the patented Keurig Cold system, which is slated for a 2015 launch.
GMCR will access to Coke’s beverage brands in the US and in 200+ countries worldwide, and CEO Brian Kelley eyed a “significant opportunity” to premiumize and accelerate cold beverage growth.
Speaking yesterday as GMCR Q1 2014 revenue totalled $1.4bn, Kelley said Coke did not demand exclusivity in terms of the other brands included in the Keurig system, but declined to say whether this included Pepsi, alluded to by one analyst as “Coke’s largest competitor with blue trucks”.
Ignition point for US soda sales?
Exploring the potential scale of cold beverages produced from pods, he said that 18m homes own a Keurig hot beverage brewer (pods for this system are pictured) with GMCR poised to roll-out its second generation machine this year.
“Cold beverages are four to five times as high as the hot beverages is the way to look at it globally and it’ probably just the same in the US and North America,” Kelley said.
In a note written today digesting the deal, Wells Fargo Securities analyst Bonnie Herzog said: “Overall, we view this as very positive as we believe this could help reignite CSD volumes.
“Importantly, we believe this partnership should drive revenue and profit growth for Coke and the CSD category based on our analysis of how GMCR’s partnership with Starbucks and other leading brands helped drive incremental growth and profits in the ground coffee category,” she added.
Noting Coke’s move to refranchise its bottling operations, Herzog said the move was also consistent with the company’s 2020 vision as each Keurig Cold user would effectively be their own ‘bottler’.
Pointing to better margins for Coke in soft drinks sold in pods rather than cans, Herzog said the partnership could “accelerate the decline of packaged CSD beverages in the take-home channel, which could have an incremental negative effect on Coke bottlers”.
Muhtar Kent sees ‘exciting opportunities’
But she added that Coke rivals such as PepsiCo and Dr Pepper might benefit from the move since it could grow the CSD category incrementally and create new consumption opportunities.
The pods might also steal share from Coke’s existing packaged beverages, benefiting rivals, she said, although they might also win custom away from PepsiCo and DPS in the same way.
Rounding up her comments, Herzog wondered whether Coke’s decision to take an equity stake in GMCR signalled more to come?
“Unlike Starbucks, Coke made an interesting decision to invest directly in GMCR, which causes us to wonder if this could be the first step in ultimately acquiring a larger stake,”she wrote.
Coke CEO Muhtar Kent (left) said the partners would be able to “capitalize on the many exciting growth opportunities in the single-serve, pod-based segment of the cold beverage industry”.
(Photo Credit: Muhtar Kent, Stefan Chow/Fortune Global Forum 2013)
