Keurig’s Strategic Partnership with Coca-Cola

Photo of a coca cola can in a display

Its been quite a year for Keurig Mountain Coffee with the introduction of its 2.0 brewers, having to deal with a number of lawsuits, including those from Club Coffee and Treehouse Foods, and waiting to see whether the SEC would carry on with its four year long investigation into questions around revenue recognition treatments in annual filed accounts. As the Wall Street Journal reported the other day, this investigation has now been completed by the SEC with no sanctions imposed.

The introduction of the 2.0 system has been a major step for Keurig as it works out how to better position itself in the competitive single serve home coffee market. Having lost the major legal protection of its patent in 2012, the firm has faced growing competition from third parties producing capsules and pods that work on Keurig brewers. Although its financial results show growing revenue and profitability over the last few years, what these figures tend to hide is the problems in maintaining and growing market share.

Despite the apparent new protection Keurig 2.0 will provide the company in being able to reaffirm its control over only its pods being used in its brewing systems, there have been announcements made by a number of competitors that they have in fact already “cracked the code” – enabling them to now produce and sell their own pods for customers to use in the Keurig systems. As we wrote about earlier in the week, Club Coffee for example has worked out how to produce pods that will work in Keurig 2.0 systems. Its CEO John Pigott is reported to have said they had the code worked out in one afternoon.

But Keurig has been busy in the market in other areas and another string to its bow is the forming of strategic alliances. One of these alliances in particular has caught the attention of the market with the new partnership this year between Keurig and Coca-Cola.

Taking an initial 10% stake in Keurig, Coca-Cola has been able to gain a strong delivery channel for its cold drinks range, with the initial agreement seeing Honest Tea being made available in K-Cups for the first time. The venture between the two firms will see more products being released to the market in future as Coke wants to see greater up-take of its cold drinks range and Keurig looking at adding to its brewing portfolio with the cold at-home brewing system. Having a brand like Coke behind it and the name recognition that its brands bring, should give Keurig a head start in a part of the sector that has yet not faced the same level of competition as the hot drinks side of the business.