BURLINGTON, MASS. — Meeting consumer needs any time of day and wherever they may be shopping is the rationale behind the merger of Keurig Green Mountain and the Dr Pepper Snapple Group into a new company to be called Keurig Dr Pepper. More specifically, the transaction brings together two distribution systems that when merged will allow each business new opportunities for expansion.
|Robert Gamgort, c.e.o. of Keurig Green Mountain|
“Today, we share distribution strength in traditional grocery, mass and club channels,” said Robert J. Gamgort, chief executive officer of Keurig Green Mountain, during a conference call to discuss the transaction on Jan. 29. “D.P.S. brings added strength in smaller impulse channels, including critical convenience outlets and vending. Small outlets are a source of the highest margin sales and are where new brands and formats are born and expanded.
“K.G.M. brings unique strength in e-commerce, office and hospitality. While most food and beverage companies have been challenged to participate in e-commerce, Keurig has developed a significant and growing e-commerce business. Combined, our nationwide distribution systems will be unrivaled, creating capabilities that will enable us to deliver products to nearly every point-of-sale.”
Meeting consumer need states throughout the day was a theme of the conference call with financial analysts.
“We all know the world has changed dramatically and consumers have more choice than ever on what to buy and where to buy it,” Mr. Gamgort said. “The traditional manufacturer-defined segmentation of the market is not cutting it anymore. We need to view the market through a consumer lens if we’re going to be able to see opportunities for innovation and growth.”
He identified five need states that drive consumer choice in beverages: Wholesomeness, hydration, refreshment, energy and indulgence. Using energy as an example, Mr. Gamgort said consumers have a need for energy in the afternoon.
“But when you think about the consumers’ considerations set to satisfy that need, it crosses over many product formats and it is no way limited or best described by traditional segment definitions,” he said. “We need to be able to work as one team across multiple beverage segments and channels of retail. That’s exactly what we’ll do by creating Keurig Dr Pepper.”
Mr. Gamgort emphasized that the new company will focus on achieving a balance between achieving scale and continuing to expand into additional growth categories.
“Scale pays for the distribution system that ultimately enables us to take faster-growing and emerging brands to a wide range of retail points of distribution,” he said. “K.D.P. will have strong exposure to both high-growth and scalable segments.”
Initial key growth segments identified by the company include non-carbonated soft drinks, juice drinks, 100% juices, still beverages, sport drinks, energy beverages, ready-to-drink coffee, still R.-T.-D. teas and single-serve coffee.
|Howard Telford, head of soft drink research for Euromonitor International|
“JAB Holdings, the owners of Keurig since taking the company private in 2015, now extend the U.S. arm of a global beverage empire — primarily focused on coffee beverages — into the heart of U.S. retail soft drinks,” said Howard Telford, head of soft drink research for Euromonitor International, Chicago. “JAB already control some of the biggest names in U.S. coffee, from Panera Bread, Caribou, Peet’s and Krispy Kreme to regional craft coffee brands Intelligentsia and Stumptown (acquired in 2015).
“So what’s behind this? With Keurig’s acquisition of D.P.S.G., the company now extends (its) reach across consumer beverage occasions: from the kitchen counter coffee machine, to the café/coffee shop and now into the American supermarket beverage aisle, adding Dr Pepper soda, Mott’s juice, Snapple R.-T.-D Tea, and D.P.S.G.’s high growth Bai drinks – as well as potentially U.S. ‘allied’ brands, including High Brew coffee and Body Armor sports drinks.
“The acquisition immediately intensifies competition in two of the most fertile growth areas of U.S. beverages: food service consumption and premium, retail brewed beverages.”
The merger was announced the morning of Jan. 29. JAB Holding Co., the parent of Keurig Green Mountain, entered into an agreement to acquire the Dr Pepper Snapple Group, Plano, Texas, for $103.75 per share. Once the transaction is completed, Dr Pepper Snapple Group and Keurig Green Mountain will merge to form Keurig Dr Pepper. The new business will have annual revenues of approximately $11 billion.
Once the transaction is complete, JAB Holding Co. will own 87% of the company and 13% will be publicly traded.“… having an element of the company that’s public while still having an anchor shareholder with incredibly long-term view, I think, is the optimal combination in today’s environment,” Mr. Gamgort said. “The public component gives us a broader toolkit that we can use for consolidation going forward. It allows us to think of some creative structures in that space. And it also, over time, provides some liquidity if some of our private partners need to exercise some liquidity in an organized fashion.”