Coca-Cola moves to enter homes

With the announcement that Coca-Cola Co. is buying a 10 percent stake in Green Mountain Coffee means that soon you’ll have the option of making your own single-serve Coke at home. The real question is what will happen to Coke’s global distribution network and its relationship with bottlers.

Michael J. de la Merced had this story in the New York Times:

Coca-Cola agreed on Wednesday to buy a 10 percent stake in Green Mountain Coffee Roasters, as it seeks to cement ties with the fast-growing coffee company.

Under the terms of the deal, Coke will buy about 16.7 million shares in Green Mountain for about $1.25 billion. The shares were priced at $74.98 each, representing the volume-weighted average price for the last 50 days.

In return, Green Mountain will be the official maker of the soda giant’s single-serve cold beverages, built on its popular Keurig pod-based system. Some of the proceeds from the investment will go toward expansion of its forthcoming Keurig Cold product.

Writing for the Wall Street Journal, Mike Esterl and Annie Gasparro:

The pact represents a major strategic shift for Atlanta-based Coke, which has relied on restaurant fountain systems and legions of bottlers to deliver its namesake cola to consumers since 1886.

It coincides with a nearly decade-long decline in U.S. soda consumption, a trend that puts pressure on Coke and rivals such as PepsiCo Inc. and Dr Pepper Snapple Group Inc. to find new ways to court drinkers.

In a conference call with reporters, Coke Chief Executive Muhtar Kent said the partnership represents “a real game-changing” innovation for the industry but that the company isn’t abandoning its traditional routes to market.

“This is not a zero-sum game,” he said, adding that Cokes bottlers will have “a very complementary role” in how the company’s products are marketed under the Keurig system.

Coke said it will make its global drink portfolio—which includes hundreds of other brands including Sprite, Fanta, Minute Maid and Powerade—available around the world through Green Mountain’s KeurigCold system. Green Mountain says the system should be available in fiscal 2015, which begins Sept. 28.

A Coke spokesman said the company has the option to increase its minority equity stake in Green Mountain to 16% during the first 36 months of the partnership.

Bloomberg reported in a story by Leslie Patton and Duane D. Stanford that while Keurig is working with Coca-Cola on developing the cold brew machine, Keurig may also partner with other beverage makers:

The companies are together working on the Keurig Cold single-cup beverage brewer that will be sold in Green Mountain’s fiscal 2015, which starts later this year. Green Mountain will make and sell Coca-Cola branded pods to go with the machine.

“This is what consumers told us they wanted,” Green Mountain CEO Brian Kelley said on the call. Coca-Cola cold-drink brands are “popular,” he said.

Still, Green Mountain will partner with other cold-beverage companies to sell single-serve pods that work in the Keurig Cold, he said. Kelley declined to discuss what other brands may be added and didn’t rule out PepsiCo Inc.

“We will have a number of partners and a number of brands on the system,” he said.

Jeff Dahncke, a spokesman for PepsiCo, declined to comment.

Kelley has been introducing new brewing machines and increasing advertising to get consumers to continue buying Keurig K-Cup packs. The Waterbury, Vermont-based company has been seeing more competition as grocery stores including Whole Foods Market Inc. begin selling private-label coffee pods.

The Reuters story by Lisa Baertlein and Phil Wahba:

“We’ll do deals with brands consumers love,” said Kelley, who added that Green Mountain has coffee deals with most major chains, including Starbucks (SBUX.O) and Dunkin’ Donuts

“We are really excited to start with Coca-Cola,” said Kelley, who came to Green Mountain from the world’s largest soda maker, where he was viewed as a product-savvy executive with expertise in product and supply chain management.

Green Mountain’s cold drink machine is scheduled to debut in fiscal 2015, which begins in October this year.

Coca-Cola CEO Muhtar Kent said on the call that the deal would give his company access to new business opportunities. He added that it would enhance Coca-Cola’s bottling system and that its bottlers would have a complimentary role.

“This gives Green Mountain a beverage partner with some hugely powerful global brands. For Coke, it gives them access to some really cool, new cutting-edge pod cold-beverage technology,” said John Sicher, editor and publisher of Beverage Digest.

Sicher said soda sales in the United States have been in decline since 2005, while growth in pod-based coffee brewing has boomed.

Coca-Cola has a lot to lose as global soda sales decline. The company has come under fire as many scientists have pointed to its products as a factor in the rise of obesity and some have even tried to ban large-sized sodas. It’s an interesting move into a new product area, signaling that Kent is willing to look at anything to keep his company on top.