In the latest step away from its traditional business, Coca-Cola (KO) is moving out of the vending machine and into your kitchen. The legendary soda maker has signed a 10-year partnership agreement with Green Mountain Coffee Roasters (GMCR) to sell Coke products that are compatible with an at home beverage system set for release later this year. Most consumers are already familiar with Green Mountain through its revolutionary Keurig single-serving coffee machines.
The $1.2 billion agreement is Coke’s latest effort to broaden its product offerings beyond fountain drinks and bottles it's been selling for almost 120 years. Coke’s portfolio already includes brands like Sprite, Minute Maid, Powerade and Vitaminwater, which Coke picked up when it bought Glaceau for $4.1 billion in 2007. These offerings are one reason Coke has been able to consistently grow revenues despite the carbonated beverage market shrinking for the last 8 years.
Strategically Coke’s move into the home is a shot across the bow of SodaStream International (SODA) which has had a virtually monopoly on at-home carbonation systems. SodaStream’s machines lets consumers make their own sparkling water as well as blended flavor drinks that borrow heavily from Coke’s branded aesthetic.
With revenues of more than $50 billion in last year Coke is 100x the size of SodaStream but the smaller company has managed to double its top line since 2011. Coke didn't become the number one beverage maker in the U.S. for more than a century because it takes competitive threats lightly. With its massive scale Coke will be able to command premium shelf-space in retailers across the globe and be positioned to capitalize on drifts in consumer tastes away from colas.
Morning Brew Alternatives
Perhaps more importantly to the Atlanta-based drink king, Coke’s partnership gives it a lead over Pepsi in the race for the at-home market. As K-cups become part of America’s breakfast routine, Coke will have its own branded beverage available to plug in for the small but growing body of people who like a little caffeinated fizz in the morning. Coke has already taken half-hearted stabs at morning soda and last year Pepsi introduced a Mountain Dew energy drink called Kickstart which is a sort of a revved up version of fruit punch with more than 30% more caffeine than Mountain Dew and a dash of Vitamin C.
The stock market seems to think there’s huge potential in at-home soda. Shares of Green Mountain rose more than 40% in early trading on Thursday and SodaStream spiked more than 10% on hopes the company could sign a comparable deal with Pepsi.
According to BeverageMarketing.com, the overall U.S. liquid refreshment market grew slightly through the first 3 quarters of last year with double-digit expansions in energy drinks and single-serve coffee offsetting a decline in soda pop.
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