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Will Keurig Kold Receive a Hot or Cold Response?

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Keurig Kold launched

On September 29, 2015, Keurig Green Mountain (GMCR) announced the launch of its much-awaited Keurig Kold beverage system. This beverage system will allow consumers to enjoy cold, homemade sparkling and still beverages.

Keurig initially started selling Keurig Kold machines on its website. Effective this month, the at-home cold beverage maker is available at select retailers, both online and in six cities, including Atlanta, Boston, Chicago, Dallas, Los Angeles, and New York. Keurig’s share price increased by ~1% to $53.71 following the news of the launch on September 29.

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Unique features

The Keurig Kold system will use pods to make cold beverages like craft and fountain-style sodas, zero and low-calorie flavored seltzers and waters, sports hydration drinks, and iced teas.

Keurig Kold does not require a carbon dioxide canister, as its pods will have Karbonator beads that contain beverage-grade carbon dioxide. Keurig Kold faces major rivalry from the cold beverage systems of SodaStream International (SODA).

Keurig Kold will offer an extensive range of private and third-party brands. Brands from Keurig’s portfolio that will be available on the Keurig Kold system include Seraphine, Flyte, Waterful, Red Barn Craft Soda, Flynn’s Soda Shop, and Tierney’s.

Keurig Kold is also offering key brands of beverage giants Dr Pepper Snapple (DPS) and The Coca-Cola Company (KO). In February 2014, Coca-Cola purchased a 10% stake in Keurig for $1.25 billion and agreed to collaborate to offer Coca-Cola’s brand on Keurig Kold machines. Coca-Cola increased its stake in Keurig to 16% in February 2015. Coca-Cola brands that are currently available on the Keurig Kold are Coca-Cola, Diet Coke, Coke Zero, Sprite, and Fanta.

In January 2015, Dr Pepper Snapple reached a multi-year agreement to develop single-serve, pod-based, carbonated Dr Pepper Snapple brands that can be used with the Keurig Kold. Currently, brands of Dr Pepper Snapple that are available on the Keurig Kold are Dr Pepper and Canada Dry.

After a small-scale test run in October 2014, PepsiCo (PEP) and SodaStream extended their partnership in the home carbonation business, according to a Wall Street Journal article in September 2015.

Why might Keurig Kold receive a cold response?

Consumers may not be comfortable with the suggested retail price of $369.99 for the Keurig Kold. In fact, Keurig’s share price fell by 8.6% to $94.26 on May 15, 2015, following an investor presentation on Keurig Kold the previous day, which revealed the higher pricing of the product and the delay in its retail distribution.

Holdings of the iShares Global Consumer Staples ETF (KXI) have 0.2% exposure to Keurig.

The cost of each pod will range between $1.12 and $1.25. Aside from the pricing, declining soda demand might also impact the product. We’ll discuss this in the next part of this series.

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