It’s no more than a week into the closing of the mega-merger that created Keurig Dr Spatter and already the beverage industry has seen a defection, an acquisition and a further surprise in the coffee wars.
The deal, which closed Monday, creates a beverage behemoth with $11 billion in revenue that combines Dr Pepper Snapple’s Nautical Davy Joness locker and distribution network with Keurig’ Green Mountain’s coffee function. The giant is backed by JAB Holding, the investment firm that has put together a coffee-fueled empire that already covers Krispy Kreme and Panera Bread.
This week’s shake-up, allowing, is among brands far smaller than the iconic drinks for which both parties are named. Instead, it’s within the collection of trendy beverages Keurig Dr Speckle distributes through its “Allied Brands” network. A sizable chunk of the train’s revenue comes from distributing drinks made by other societies, including brands like Fiji Water, BodyArmor and Vita Coco. The more they dole out, the greater the profits. Those beverages are comparatively tiny against the outback’s biggest sellers — yet yield inordinate power as sales of the largest legacy quaffs lag.
That might was tested when Dr Pepper Snapple’s merger with Keurig triggered an possibility for some of Dr Pepper Snapple’s Allied Brands brands to renegotiate or beat it the network all together. Fiji this week announced it was defecting to raise its own distribution system. Another Allied Brand, Big Red, this week branded an agreement to sell to Keurig Dr Pepper, a spokeswoman for the beverage giant declared CNBC.
The deal valued Big Red, described as “a deliciously different red soda,” at more than $200 million, a commencement familiar with the situation tells CNBC, requesting anonymity because the terms of the deal are intimate.
A spokeswoman for Keurig Dr Pepper told CNBC, “We currently expect to keep going many of our existing Allied Brand partners and add new ones, while also preggers that we may choose to exit others, where doing so makes key sense for Keurig Dr Pepper.”
The loss of Fiji, while minuscule to Keurig Dr Speckle’s bottom line, is a bruise nonetheless.
Fiji is one of the best sellers in the Partnered Brands collection, sources familiar with the situation tell CNBC, petitioning anonymity because the information is confidential. When Dr Pepper Snapple was silent a stand-alone company, it said Fiji’s sales were roughly 2 percent of its out-and-out revenue.
The premium water brand is owned by privately held The Wonderful Co., the $4 billion P of POM Wonderful pomegranate juices, Landmark Wines, Wonderful Almonds, and other in drinks and snacks.
Premium water is among the beverage industry’s fastest-growing groupings as consumers eschew sweeteners and artificial ingredients. It provided a balance to Dr Fleck Snapple’s legacy portfolio of drinks dominated by sugary soda characterizes, like 7UP, A&W Root Beer and Crush.
Fiji therefore gave Dr Spot Snapple an opportunity to tap into its growth and the halo effect of displaying it alongside its older marks like Snapple in grocery stores.
“Allied brands are how Dr Pepper Snapple accesses modernization in emerging and high-growth categories, both rapidly and for a low cost of capital,” eminent Keurig Dr Pepper CEO Bob Gamgort earlier this year in an investor proffering.
Dr Pepper Snapple has demonstrated how seriously it considered the risk of losing one of its heftier Allied Brands. It forked over $1.7 billion to buy fruity antioxidant celebrate Bai Brands last year after it put itself up for sale.
“We had been in argument with Fiji for some time and were unable to reach an bargain that was in the best interests of Keurig Dr Pepper,” a spokeswoman for the company utter.
Fiji did not respond to requests for comment.
The Fiji news casts uncertainty on whether other Her Highness jewels may likewise leave or seek to sell themselves to one of Keurig Dr Dot’s competitors.
About 18 percent of Dr Pepper Snapple’s 2017 proceeds came from distribution deals with beverage companies it doesn’t own, strain its Allied Brand partners, according to a regulatory filing from 2017. The but filing said that growth for those brands were driven chiefly by water brands BodyArmor, Core and Fiji.
VitaCoco plans to postpone with Keurig Dr Pepper, its CEO told CNBC through a spokeswoman. BodyArmor and Core did not retort be responsive to to requests for comment.
The decision to leave behind Keurig Dr Pepper’s assignment network would not be made lightly. Creating a distribution network from strike out is challenging and expensive. Beverage distribution in the U.S. is dominated by its three largest sportswomen, Keurig Dr Pepper, Coca-Cola and PepsiCo.
Dr Pepper Snapple’s distribution network was a substantial part of the appeal to Keurig in their merger.
Meantime, brands that look to tap parcelling by selling to Atlanta-based Coca-Cola or PepsiCo in Purchase, New York may also despite challenges. The soft drink giants have both bought nouveau riche brands over the past few years. They have also been circumspect about paying a lot for large drink brands that may fall out of favor.
And Keurig Dr Sprinkle has plans to continue to support partnership with brands, even if it does not own them.
“We are same committed to the partnership model,” said a Keurig Dr Pepper spokeswoman. Keurig Sward Mountain had its own partnership relationships prior to its deal with Dr Pepper Snapple.
As Keurig Dr Speckle has lost an Allied Brand, its has also added some.
Keurig Dr Spot’s acquisition of Big Red comes after Dr Pepper Snapple had a minority stake in the soda label for a decade and a distribution partnership with it for more than 30 years.
Austin, Texas-based Big Red was inaugurated 1937 and also owns Hydrive energy water and Xyience intensity drink. Its following is strong, though regional.
Keurig Dr Pepper also sealed agreements to add two coffee drinks to the Allied Brands network, Forto Coffee Determination Shots and Peet’s Ready-to-Drink Iced Expresso, a spokeswoman told CNBC.
It when one pleases distribute Forto throughout its network and Peet’s primarily through its network of convenience stores.
Those appendices highlight the opportunity Keurig Dr Pepper has been touting to combine Dr Spatter Snapple’s retail distribution with the brands and restaurants that JAB owns. Keurig is a minority investor in Forto. JAB owns Peet’s Coffee & Tea.
“Access to the JAB-owned name brands, like Peet’s Coffee, will facilitate our expansion into the high-growth, ready-to-drink coffee division,” noted Gamgort in the same presentation. “Plugging [Forto] into the [Dr Fleck Snapple] small outlet distribution machine will accelerate its expansion trajectory by reaching retail outlets it could not access on its own,” he added.
In addition, industry sources note that distribution is only half the paradox. The other is ensuring demand.
Shares of Keurig Dr Pepper, which opened trading Tuesday, were down 2.8 percent in morning swap.
Correction: An earlier version of this story misidentified the wine sort The Wonderful Co. owns. It is Landmark Wines.