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Coca-Cola Co. is taking a giant step away from the traditional soda aisle and into the kitchen.
In a historic move by the owner of the world's most storied beverage brand, Coca-Cola Co. said Wednesday it signed a 10-year partnership to sell its drinks through an at-home beverage system being developed by Green Mountain Coffee Roasters Inc., the maker of the Keurig single-serve coffee maker.
Coke is also acquiring a 10% stake in Green Mountain for approximately $1.25 billion.
The pact represents a major strategic shift for Atlanta-based Coke, which has relied on restaurant fountain systems and legions of bottlers to deliver its namesake cola to consumers since 1886.
It coincides with a nearly decade-long decline in U.S. soda consumption, a trend that puts pressure on Coke and rivals such as PepsiCo Inc. and Dr Pepper Snapple Group Inc. to find new ways to court drinkers.
In a conference call with reporters, Coke Chief Executive Muhtar Kent said the partnership represents "a real game-changing'' innovation for the industry but that the company isn't abandoning its traditional routes to market.
"This is not a zero-sum game,'' he said, adding that Cokes bottlers will have "a very complementary role'' in how the company's products are marketed under the Keurig system.
Coke said it will make its global drink portfolio—which includes hundreds of other brands including Sprite, Fanta, Minute Maid and Powerade—available around the world through Green Mountain's KeurigCold system. Green Mountain says the system should be available in fiscal 2015, which begins Sept. 28.
A Coke spokesman said the company has the option to increase its minority equity stake in Green Mountain to 16% during the first 36 months of the partnership.
The deal is a huge step in Green Mountain Chief Executive Brian Kelley's effort to expand the company beyond its core business of selling coffee machines and single-serve K-cup packets, where it faces increasing competition.
Mr. Kelley, who spent five years as a senior Coca-Cola executive before taking the helm at Green Mountain in December 2012, has made that transformation the strategic centerpiece of his tenure. He has laid out plans for new types of brewers and drinks and for products targeted at the workplace as well as home kitchens. Shares in Green Mountain—which have been under pressure from short sellers, which bet on the stock falling—jumped 41% to $114.34 in after-hours trading Wednesday.
Green Mountain's partnership with Coca-Cola poses a competitive threat to SodaStream International Ltd., the current global market leader in counter-top, soda-making machines.
SodaStream's shares fell 7% to $33.28 in after-hours activity. Coke was 1.1% higher at $38.03 in after-hours trading.
Green Mountain in September announced a partnership with Campbell Soup Co. to sell pods for Keurig machines that will brew a cup of chicken broth. The K-Cups come with packets of dried noodles and vegetables to mix in. Green Mountain also has talked about options for medicated teas and energy drinks.
The Coke deal entails a bigger challenge, as Green Mountain said it will start selling a new type of machine to make sodas. Green Mountain indicated it also plans to make other beverage brands available for the machine, but Mr. Kelley didn't specify which ones.
Coke paid $12.3 billion in 2010 to buy its largest U.S. bottler and secure control over most production and distribution in its home market. But it outlined plans last year to at least partially re-franchise its U.S. distribution network and relies heavily on independent bottling partners in most of the world.
The Green Mountain deal also gives Coke a big footprint in coffee and tea – beverages that have been growing at a faster clip than soda in recent years as Americans seek more caffeine and warm beverages.
In its last major U.S. diversification move, Coke acquired Glaceau, the maker of Vitaminwater, in 2007 for $4.1 billion. It has also snapped up smaller companies in recent years to expand into fast-growing areas like coconut water and exotic fruit juices.
The single-serve brewing business currently accounts for more than 90% of Green Mountain's revenue. The company plans to change its name to Keurig Green Mountain Inc. to reflect the growing importance of that business.
Coming Soon: Coke for the K-Cup Crowd - Yahoo Finance
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