Thursday, February 6, 2014
Move over, K-Cup. It's time for … the Coke-Cup?
In its ongoing march into new territory as soda sales have flattened, Coca-Cola (KO) is paying $1.25 billion for a 10 percent share of Green Mountain Coffee Roasters (GMCR).
But this doesn't mean that Coca-Cola is expanding into coffee. Instead, Coca-Cola is striking out at another competitor: SodaStream (SODA).
Coca-Cola wants in on the do-it-yourself soda making that SodaStream has pioneered. SodaStream will pull in about $562 million in sales for 2013, and wants to become a billion-dollar company by 2016. It's barely begun to tap the potential of the home-carbonation market -- and Coca-Cola is moving in now through its new partner.
Green Mountain, which made a name for itself with the Keurig line of single-cup brewers, is developing a new machine for cold drinks. The Keurig Cold system, as it is called, will be able to make carbonated drinks, enhanced waters, juice and sports drinks and iced teas.
Coca-Cola will also throw its energies into Keurig Cold, which is expected to become available in 2015. The company will give its blessing to Coke-branded pods to use in the machine.
And that will hit at a weak spot in SodaStream’s business. Although SodaStream has licensed flavors from Country Time, Ocean Spray and Kool-Aid, it can only offer the very generic-sounding "cola" and "cherry cola" varieties.
Keurig will be able to sell make-your-own Coke and Diet Coke, and probably Hi-C and Fuze as well.
Investors applauded the news, sending Green Mountain shares up more than 40 percent Wednesday in after-hours trading. Coca-Cola shares rose more than 1 percent, while SodaStream fell by nearly 4 percent. PepsiCo (PEP) is undoubtedly looking to make a splash in this sector as well, and it's unclear if that means also hooking up with Green Mountain or trying a different tack.
But while Pepsi has diversified broadly into snack foods and other grocery items, Coca-Cola has stayed mostly in the beverage arena -- and has more at stake as the business changes. Soda sales have been on the decline for years in America as people search for healthier options. Now, Americans drink about 44 gallons of soda a year, down 17 percent from 1998, USA Today reports. They now drink about 58 gallons of water a year -- a 38 percent increase over that same period.
Coca-Cola sees where this trend is going. People may not want to buy a six-pack of Diet Coke at the grocery store anymore, but perhaps they'll carbonate their own Coke at home.
Will teaming up with Green Mountain cannibalize sales of its own sodas? Probably not. When your namesake product is on the outs with your core market, it's time to mix up the business a bit. Tying up with a DIY soda maker is worth a shot.
KIM PETERSON CBS