Growing competition in the global beverage market has created a first-of-its-kind hybrid of brands: the merger of a leading coffee brand with a Big Three carbonated soft drink company.
Keurig Green Mountain is buying Dr Pepper Snapple Group in a $21 billion ($18.7 billion in cash) merger agreement that will create an $11 billion amalgam of hot and cold brands that will blur the traditional lines in the beverage industry and go down as the largest soft drink deal ever.
We’ve agreed to merge with @DrPepperSnapple so consumers everywhere can enjoy our world-class portfolio of iconic hot and cold beverage brands. https://t.co/nyLYhbYk6S
— Keurig (@Keurig) January 29, 2018
The new holding company, called Keurig Dr Pepper, will own Dr Pepper, Sunkist, 7-Up, Snapple and Keurig brands. Keurig parent JAB Holdings is a European family-based investment company that also owns Au Bon Pain, Krispy Kreme, Caribou Coffee and Panera Bread as well as the international coffee operations of Mondelez. Dr Pepper Snapple purchased Bai Brands in 2016 in a bid to diversify its portfolio.
The companies’ joint press release describes the entity as “a new beverage company of scale with a portfolio of iconic consumer brands and unrivaled distribution capability to reach virtually every point of sale in North America.”
Keurig CEO Bob Gamgort commented,
“Our view of the industry through the lens of consumer needs, versus traditional manufacturer-defined segments, unlocks the opportunity to combine hot and cold beverages and create a platform to increase exposure to high-growth formats. The combination of Dr Pepper Snapple and Keurig will create a new scale beverage company which addresses today’s consumer needs, with a powerful platform of consumer brands and an unparalleled distribution capability to reach virtually every consumer, everywhere. We are fortunate to have talented leadership teams within both companies, and I look forward to working together with the Dr Pepper Snapple team to make this combination a success for all of our stakeholders.”
Larry Young, President and CEO of Dr Pepper Snapple, added,
“This transaction will deliver significant and immediate value to our shareholders, along with the opportunity to participate in the long-term upside potential of our combined company and attract new brands and beverage categories to our platform in a fast-changing industry landscape. We are excited to combine with Keurig to build on the rich heritage and expertise of both companies and provide the highest-quality hot and cold beverages to satisfy every consumer throughout the day.”
Gamgort, who will run the combined company, told the Wall Street Journal that he will use Dr Pepper’s distribution network to market drinks such as Peet’s Coffee and Forto coffee shots and use Keurig’s online presence to sell more Dr. Pepper drinks through retailers such as Amazon.
Dr Pepper Snapple is much smaller than Coca-Cola and PepsiCo, and more dependent on sugary soft drinks—a declining market segment as coffees, teas, juices and sparkling waters have been taking off. Coca-Cola bought a stake in Keurig to take on SodaStream with a line of single-serve carbonated beverages called KOLD, but that partnership ended in 2016.
“We have a really wide portfolio of brands, we’re able to address almost every consumer need in every format and … to reach every point of sale,” Gamgort told Reuters about the outlook for Keurig Dr Pepper. “If you want to win in the beverage industry you need a portion of your portfolio that gives you significant scale, and then you need to be able to layer in higher growth-segments.”
One big benefit of the merger for Keurig, which has been stepping up marketing including a deal with late night host James Corden last year—with ready-to-drink coffee sales soaring, the combined company will help expand its distribution and get its bottled coffee drinks into convenience stores, drug stores and vending machines, strengthening its position against the Starbucks Frappucino juggernaut in stores.
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