Most people by now may have heard of Coca-Cola purchasing an investment stake with the makers of the Keurig machines – Green Mountain Coffee Roasters (GMCR). For those that haven’t, there’s some quick information from the New York Times here. As a result of this deal, Coca-Cola appears to be making its first foray into small home appliances and endear itself more closely with consumers. Experts have called this a great deal for both companies, providing each with mutual benefits. But is this really the case where both companies benefit? And what about other companies, should companies like Pepsi, SodaStream, or Starbucks be concerned? Let’s take a quick look, first at the participating companies and then toward the others that are potentially affected.
For GMCR, this is partnership born out of necessity that will secure their footing in the single-serve beverage marketplace. Following 2012, Green Mountain’ single-pod (K-Cup) cup patent expired and paved the way for other manufacturers (namely store brands) that could make these beverage pods cheaper. To ensure survival of this increasingly rich revenue stream (more than two-thirds of the company’s revenues come from these pods), GMCR took to forming licensing agreements. Coca-Cola was added to a licensing roster that already includes Starbucks, Lipton, Snapple, Timothy’s, Kahlua, and many more. With a Keurig machine that produces single-serve hot beverages and now one that can product single-serve cold beverages, Green Mountain has certainly done well to ensure its survival. With Coca- Cola’s reach across the consumer distribution channels, the Keurig machine will see dramatic business growth over the course of their 10-year pact. Think of what Coca-Cola has done for beverage brands like evian, Monster, and vitaminwater. An even better scenario would be signing Pepsi to a licensing agreement as well, which will further increase the Keurig’s machine placement among households and strengthen their dominance in making branded single-serve pods.
With Coca-Cola, this is a partnership that further segments the beverage landscape, and answers competitive pressure from new entrants to the ever-changing beverage market. Coca-Cola is undoubtedly answering SodaStream’s “Sorry Coke and Pepsi” campaign about how the global beverage manufacturer is creating waste through its plastic bottles. With single-serve pods and small home appliances, Coca-Cola is able to compete in a position similar to SodaStream – providing carbonated beverages at home without the need for plastic bottles. And Coca-Cola now has an opportunity to exist on the counter shelf within the household, in addition to the refrigerator, pantry and garage. Think about the ability to remind the consumer to consumer or purchase your product when your products are so pervasive within their household. The next step to success for Coca-Cola may be investigating opportunities to leverage Coca-Cola Freestyle (create your own beverage mix) with the Keurig Cold, building on consumer insights to provide custom combinations and offer exclusive flavors “voted” by consumers.
For SodaStream, this marks their inclusion into the Soda Wars that has primarily existed between Coca-Cola and Pepsi over the past few decades. If you keep on making eye-catching commercials targeted against the beverage conglomerates, they are certain to pay attention and respond. This may be detrimental to SodaStream given the extra competition toward securing household counter space, but it also calls for innovation and a return to focus on the product benefits. SodaStream’s foundation is still their ability to make soda at home, less expensive and without the use of plastic bottles. Similar to GMCR, SodaStream must innovate and work to secure more licensing agreements. Beyond Kraft and Ocean Spray, SodaStream may also work to sign on other brands such as Pepsi, Dr Pepper, and many more.
Now that Coca-Cola has invested into single-serve pods, it’s almost certain that Pepsi will respond in some way with their own pod offerings. They responded in the past to Coke Zero with Pepsi Max and Dasani Drops with Aquafina FlavorSplash, amidst a host of other gap-filling products. Pepsi surely won’t allow Coca-Cola to dominate the consumer’s counter space when their own offerings are just as robust, so it will only be a matter of time before Pepsi take the Soda War to the small home appliance. The question is when and with whom.
The dark horse in all this may actually be Starbucks. Starbucks had trademarked the name “Fizzio” with the intent to produce their own carbonated beverages. To expand on their own burgeoning beverage empire, Starbucks may need to move up the deadline for when the Fizzio will be launched, or partner more closely with GMCR to serve both hot and cold single-serve beverage pods.
This news of Coca-Cola and Green Mountain Coffee Roasters signing a 10-year agreement has certainly created ripples across the industry. The impact that has yet to be fully fleshed out with retailers as well, and that itself will be another article in the coming weeks.