On August 25, KDP announced that it’s en route to splitting the coffee and soft drink franchises, and it appears the main reason isn’t the former’s financial underperformance, which may well reverse given the gigantic global demand for the rich black brew, but an admission that the two businesses aren’t the great synergistic fit originally envisaged. KDP will first purchase centuries-old JDE Peet’s, Europe’s dominant coffee-seller featuring such brands as Jacobs and L’Or, then combine it with the Keurig arm to create a global colossus featuring sales balanced about evenly between Europe and North America hosting annual revenues of nearly $16 billion. Then, KDP will spin off the coffee franchise to its shareholders as an independent enterprise. The remaining business will focus exclusively on soft drinks, a vast portfolio of over 150 brands it either owns distributes or partners alongside, encompassing 7 Up and A&W root beer, Snapple and La Colombe, Schweppes and Hawaiian Punch.
The deal’s architect appears to be Gamgort’s successor, CEO Tim Cofer. Though relatively little-known, Cofer enjoyed a big career at Kraft Foods and Mondelez before taking the helm at KDP in November of 2023. Cofer learned dealmaking under the mentorship of former Mondelez chief Irene Rosenfeld. After Rosenfeld masterminded the merger of Kraft Foods and Europe’s Cadbury, it was Cofer who managed the thorny but successful trans-Atlantic integration of the two chocolate kings that enabled the split of the Kraft Foods into the Kraft grocery and Mondelez snack businesses. Then as chief of Asia for Mondelez, Cofer greatly expanded its footprint in the region by purchasing Vietnam’s largest seller of snacks. Cofer then led Mondelez in North America and though he was the leading internal candidate to succeed Rosenfeld, lost to Belgian-born Dirk Van de Put.
KDP is paying a formidable $18.4 billion for JDE Peet’s, which combines the European coffee business and the Peet’s 250 retail stores in 13 states. The market disliked like the purchase: On August 25, KDP’s stock dropped 11% to around $31, erasing several billion dollars in market cap. But despite investors’ initial harsh reaction, Cofer’s big strategic shift makes sense for KDP.
“At the time the Keurig-Dr Pepper merger was announced, it attracted a lot of skepticism,” says Connor Rattigan, an analyst at global data provider Consumer Edge. “Now, we have a tacit admission that the market speculation at the time has proven correct.” Rattigan explains that the coffee and soft drink businesses are so different that it’s hard to find areas where melding the two proves more efficient than operating them separately. In fact, the opposite may be true. For example, the refreshment beverage side benefits greatly from KDP’s direct-store-delivery system where it runs a web of warehouses and operates its own trucks for shipment to retailers. The DSD advantage, says Rattigan, is that KDP can reach all manner of small stores, not just the Walmarts, and that KDP has its own employees physically walking into the stores, and at the same time building strong ties with retailers. But K-Pods, he notes, aren’t sold in local outlets such as 7-11s and delis, they’re shipped mainly to the megastores. Hence, the advantage of DSD for coffee isn’t nearly as great as for soft drinks.
Rattigan adds that KDP’s already thriving in refreshment drinks “while management’s spending a significant portion of its time on a totally different business.” He believes a full concentration on the refreshment world of liquids would yield big benefits, especially since KDP enjoys plenty of what he calls “white space,” or scope, for expansion—and not just in energy and sports drinks. “They have lots of room to grow in restaurants, where Coke and Pepsi are extremely dominant,” he says. Gaining share in fast food and other eateries should be highly doable, given that regular Dr Pepper recently surpassed classic Pepsi as America’s best-selling soft drink behind Coke.
Cofer helped lift KDP to that milestone. It will take all this master’s dealmaking and marketing skills to prove the market’s wrong, and that the promise of going all-in on one of America’s best panoply of brands can overcome the headwind of a lofty price.
