Coke has perennially touted the size of the market opportunity it perceives in soft drinks by focusing on 'share of stomach,' the metric iconic former CEO Roberto Goizueta used when analysts challenged the company's prospects.
The problem for Coke - and for arch rival Pepsi - is that the decline in consumer interest due to reasons of health and weight is now quite obvious. The question is how to offset that trend in a way that appears meaningful - and material - to investors, analysts and customers.
The investment in Keurig is as much about share of mind - perceptions, if you will - as it is about share of stomach. The company wants to demonstrate that it has identified credible sources of growth and profitability to offset the opportunity cost of declining soda sales trajectories. What Coke hopes most of all is that any uptick it garners from Keurig and others adds up to more than tiny bubbles. JL
Duane Stanford reports in Bloomberg:
The investment fits into Coca-Cola’s strategy of taking equity stakes in promising new brands and technologies as healthier habits hits its main revenue growth
Coca-Cola Co. (KO) will become Keurig Green Mountain Inc. (GMCR)’s largest shareholder after raising its stake to 16 percent, doubling down on the maker of Keurig coffee brewers at a time when consumers are increasingly shunning sugary sodas.
Keurig jumped 7.6 percent to $119.07 after Coca-Cola announced the plan in a filing today. The soft-drink company will own about 26 million shares within nine months after it exercises an option to add additional stock. It had bought an initial stake of 10 percent in February.
The investment fits into Coca-Cola’s strategy of taking equity stakes in promising new brands and technologies as healthier habits hits its main revenue growth. The companies are working together on the Keurig Cold single-cup beverage system that will be sold in Keurig’s fiscal 2015, starting later this year. The coffee maker will also produce and sell Coca-Cola-branded pods to go with the machine.
The “purchases demonstrate our continued belief that Keurig Green Mountain has substantial growth potential,” Atlanta-based Coca-Cola said in an e-mailed statement.
Shares of Waterbury, Vermont-based Keurig have jumped 47 percent since Feb. 5, the day Coca-Cola announced it was the buying the stake. Coca-Cola’s stock advanced 0.7 percent to $41.11 today.
SodaStream Competition
Under today’s agreement, Coca-Cola owns about 19.5 million shares and has the right to buy as much as 6.5 million more. The company signed a pact with Credit Suisse Group AG to purchase the balance of the stake by Feb. 13, 2015. The bank will set the price, determined by timing and an agreed-upon formula, according to the filing.
The partnership between Coca-Cola and Keurig will ratchet up competition for SodaStream International Ltd., a Lod, Israel-based company that makes home carbonation appliances and soft-drink syrups.
In February, Coca-Cola bought 16.7 million newly issued shares in Keurig for about $1.25 billion and said it had the option to raise the stake to as much as 16 percent during the first 36 months. Amanda Rosseter, a spokeswoman for Coca-Cola, declined to elaborate on the timing of the agreement beyond the filing.
Coca-Cola previously took equity stakes in Zico coconut water and Honest Tea, and helped incubate them. Coca-Cola eventually acquired all of Zico and Honest.
Coca-Cola’s investment in Keurig could be seen as a precursor to an eventual acquisition, though not right away, Ali Dibadj, a New York-based analyst at Sanford C. Bernstein & Co., said last month.
Keurig, which changed its name from Green Mountain Coffee Roasters Inc. in March, has been speculated as a takeover candidate for at least three years, in part because of its rapid growth.
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