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Can Keurig Kold Add Some Fizz to Keurig’s Sales?

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Keurig’s declining sales

In Part One of this series, we discussed the much-anticipated launch of Keurig Green Mountain’s (GMCR) at-home cold beverage maker Keurig Kold on September 29, 2015.

In a conference call for the third quarter of fiscal 2015, Brian P. Kelley, Keurig’s President and CEO (chief executive officer) spoke about the company’s expectation to sell hundreds of thousands of Keurig Kold systems in the first year of Keurig Kold’s launch. Keurig plans to invest at least $100 million or higher in Keurig Kold in 2016, depending on pod-manufacturing efficiencies and channel mix.

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Keurig’s sales under pressure

Keurig’s sales in the third quarter of fiscal 2015 ended June 27, 2015, declined by 5.2% to $969.6 million, due to declines in brewer sales and pod sales. In the first nine months of fiscal 2015, the company’s net sales declined by 0.8% to $3.5 billion from the comparable period of the previous year.

However, the company is optimistic about the long-term prospects of the recently launched Keurig Kold.

Is the optimism justified?

According to market research firm Information Resources, based on data for the 52 weeks ending December 28, 2014, the value of the US cold nonalcoholic beverage market was over $50 billion, while the hot beverage market was worth just $10 billion. The launch of the Keurig Kold at-home beverage maker should help Keurig to capture growth opportunities in the cold beverage market.

Keurig makes up 0.24% of the portfolio holdings of the iShares Russell Mid-Cap Growth ETF (IWP) and 0.21% of the iShares Global Consumer Staples ETF (KXI).

Also, Keurig’s multi-year partnerships with The Coca-Cola Company (KO) and Dr Pepper Snapple (DPS) are beneficial for Keurig Kold’s growth. Aside from the brands mentioned in the first part of this series, Coca-Cola’s other brands like Coca-Cola Life and Gold Peak Tea are expected to be made available on the Keurig Kold platform in the near future.

However, Keurig Kold has entered the US market at a time when the demand for soda beverages is fading due to health concerns. According to the Beverage Marketing Corporation, US carbonated soft drink (or CSD) volumes declined by 0.9% in the first half of 2015 from the comparable period of the previous year. This is in contrast to categories like ready-to-drink coffee, energy drinks, ready-to-drink tea, and bottled water, which registered volume growth of 19.1%, 9.7%, 7.4%, and 6.8%, respectively, in the first half of the year.

The continued decline in soda volumes is a negative indicator for Keurig Kold. Aside from a new beverage system like Keurig Kold, Keurig is taking other initiatives to improve its sales.

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