Coke, Dunkin' Take On Pepsi in Bottled Coffee -- WSJ
September 30 2016 - 3:03AM
Dow Jones News
By Mike Esterl and Julie Jargon
A war is breaking out between Coke and Pepsi, but this time it
isn't about cola. It's coffee.
Dunkin' Brands Group Inc. said Thursday that it would launch
bottled Dunkin' Donuts coffee in U.S. stores early next year. The
ready-to-drink coffee will be produced and distributed by Coca-Cola
Co.
Coke and Dunkin' are taking aim at the fast-growing canned and
bottled coffee market that has long been dominated by a joint
venture between PepsiCo Inc. and Starbucks Corp., with their
top-selling Starbucks Frappuccino.
This is a major foray into coffee by Coke, which earlier this
month said it also would start selling cold-brew coffee in U.S.
stores under its Gold Peak tea brand early next year.
Coke is a bigger player in ready-to-drink coffee globally, with
its top-selling Georgia brand in Japan.
For years, executives and analysts close to the company have
expected Coke to take such a step. The Atlanta-based beverage giant
faces rising pressure to find new growth after its beverage volumes
stalled in the most recent quarter.
The moves come as Coke also tries to catch up in the U.S.
ready-to-drink tea market, which also is growing fast as Americans
thirst for more caffeine but less soda. The bottled tea category is
led by the Lipton joint venture of PepsiCo and Unilever NV.
For Dunkin', it is the latest attempt to position itself in the
U.S. as more of a coffee destination than a doughnut stop. Coffee
already represents 50% of its U.S. sales, including hot, iced,
brewed and espresso. This summer, it rolled out cold brew coffee in
some markets and is testing café au lait in New York.
Dunkin' acknowledged bottled coffee sales in its doughnut shops
could hurt sales of its iced coffee drinks but that many customers
who buy coffee at Dunkin' Donuts go elsewhere later in the day to
buy a competitor's bottled coffee brand.
"We want to stop that from happening," Dunkin' Chief Executive
Nigel Travis said in an interview.
Under their partnership, Coke will pay a fee to Dunkin' that
will be split between the company and franchisees that operate
nearly all of its shops. Neither company would disclose financial
terms.
To make the coffee, Coke will make use of U.S. milk-making
facilities through its Fairlife dairy joint venture, according to a
person familiar with Coke's plans.
Bottled coffee sales are still a fraction of soda and bottled
water sales, in large part because many consumers prefer coffee hot
and freshly brewed. Still, U.S. retail sales of ready-to-drink
coffee rose 14% to $2.54 billion last year, the fourth straight
year of at least 10% growth, according to the data service
Euromonitor International.
The Starbucks-PepsiCo venture had a 75% market share last year,
followed by Monster Beverage Corp., with 15%. Coke owns a minority
stake in Monster and distributes but doesn't make ready-to-drink
coffee from Italy's Illy Caffee SpA, which has less than a 1%
market share in the U.S.
In recent years, Dunkin' has expanded its presence in the
consumer packaged-coffee space with bagged coffee and single-serve
K-cups. The company predicts that by the end of the year it will
sell 2.4 billion cups of coffee through its packaged coffee
business in the U.S. -- on top of the 2 billion cups of coffee it
will serve globally at its shops.
Write to Mike Esterl at mike.esterl@wsj.com and Julie Jargon at
julie.jargon@wsj.com
(END) Dow Jones Newswires
September 30, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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