By Annie Gasparro and Mike Esterl
Keurig Green Mountain Inc. signed a deal with Dr Pepper Snapple
Group Inc. to sell capsules that make its sodas in Keurig's planned
cold-drink machine, giving the maker of coffee and brewing machines
two of the top three soda companies on a platform central to its
long-term expansion plans.
The deal, to be announced on Wednesday, follows industry leader
Coca-Cola Co.'s agreement last year for its beverage brands to be
part of Keurig's countertop soda machines. Coke also took a 16%
stake in Keurig last year. Keurig said the new deal means it will
have at least 30 beverage varieties--including multiple brands from
the two soda partners--for the new machine, which it expects to
come out in September.
Keurig is betting the new machine will enable it to grow beyond
the single-serve coffee brewers and K-Cup pods it is known for. It
hopes the soda deals can give it an edge over SodaStream
International Ltd., which is the leading maker of do-it-yourself
carbonation machines but has struggled to secure big brands.
Code-named Geyser internally, the cold machine will use a single
pod to flavor and carbonate room-temperature water that the machine
chills to 38 degrees Fahrenheit in less than a minute. Keurig has
been working on the technology for five years.
"The challenges are, first, making sure the technology delivers,
then scaling that technology, and third, commercializing it," Chief
Executive Brian Kelley said in an interview.
Keurig and Dr Pepper didn't disclose financial terms for their
multiyear deal, which Dr Pepper said prevents it from sharing its
carbonated drink brands with SodaStream or other countertop drink
machines.
The deal could put pressure on PepsiCo Inc., the second-largest
U.S. beverage company, which began a limited sales test of its
drinks with SodaStream late last year but hasn't said if it plans
to expand the agreement.
Coke and Dr Pepper hope Keurig's countertop machine will lure
consumers back to bubbles. U.S. soda-industry volumes have fallen
10 straight years as health-conscious Americans switch to water and
other drinks. Coke Chief Executive Muhtar Kent has called Keurig's
technology "game-changing."
The lightweight pods make it more financially feasible to order
and ship beverages online, and consumers wouldn't have to lug
bottles and cans from stores. There's also the mere novelty of
making their drinks at home.
"Consumers love to be able to discover and try new technology,"
said Mr. Kelley, a former Coke executive who took the helm at
Keurig just over two years ago.
Keurig estimates its coffee brewers are used in 20 million U.S.
households, and it says expanding into cold beverages will increase
its international potential.--since the coffee market is too
saturated in Europe and elsewhere for Keurig to make a dent. If the
soda machine works and people buy it, it will also prove Keurig's
worth as a technology provider.
Still, it remains to be seen whether Americans are willing to
shell out what could be $200 for the machine--the company has said
it may be priced at the high end of its coffee brewers--plus change
for each capsule. SodaStream's machines, which start at a much
lower price, are only in about 1% of American households, and its
U.S. sales dropped sharply in the third quarter.
PepsiCo Chief Executive Indra Nooyi has said it's too early to
predict if do-it-yourself machines will take off because it's tough
to replicate the taste of drinks like Pepsi and consumers have to
wait 45 seconds instead of three seconds to open a can or bottle.
"People think that's 42 seconds wasted," she told an industry
conference last month.
Mr. Kelley said Keurig is joining with other beverage companies
for its machine and will come out with some of its own drink pods.
He declined to comment on the possibility of a deal with PepsiCo
Inc., which might be reluctant to sell its products to a company
partly owned by Coke.
Mr. Kelley said the new at-home soda fountains will be sent to
some consumers for market testing early this year while Keurig
works on the equipment to mass produce them.
Write to Annie Gasparro at annie.gasparro@wsj.com and Mike
Esterl at mike.esterl@wsj.com
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