2024 Processor of the Year: Keurig Dr Pepper, Energized

The $990 million will buy a 60% ownership stake in Ghost now, with agreements for KDP to purchase the remaining 40% stake in 2028 “at a pre-negotiated valuation scale that will reflect Ghost's 2027 financial performance.” It likely will be KDP’s biggest acquisition or investment.

“We believe energy is one of the most attractive categories within total LRB [liquid refreshment beverages],” Tim Cofer, Keurig Dr Pepper’s CEO, said in announcing the deal. “I think what we are starting to see is as that category matures, it’s evolving to serve distinct consumer need states and occasions, and we believe that landscape lends itself well to a portfolio approach.

“And that’s what we are pursuing with today’s announcement is a collection of brands that work in complementary ways to address different consumer needs and different occasions while obviously generating scale that will benefit our DSD (direct-store delivery) system.”

Cofer just became KDP’s CEO this April after serving six months as chief operating officer under Robert Gamgort, who had been both chairman and CEO since the Keurig-Dr Pepper merger. Cofer immediately came from Central Garden & Pet Co., although he spent more than 25 years with Mondelēz International and its predecessor company, Kraft Foods, with responsibility across a wide range of product categories, including coffee, chocolate and packaged food. Gamgort, who long ago also was at Kraft, retains the title of executive chairman.

Cofer said that two years ago Keurig Dr Pepper had very little presence in the energy beverage category. Today, the company has several brands that “will allow us to establish a multifaceted energy platform,” he said.

“We have been competing in and closely examining the energy category for several years, and during this time, Ghost has emerged as a standout brand,” added Justin Whitmore, a former Tyson executive who’s now chief strategy officer for KDP. “It’s one of the fastest-growing names in the sector, featuring engaging packaging, a variety of exciting flavors and a strong lifestyle positioning that resonates with consumers.”

Whitmore also noted there were two other recent, unpublicized deals in the energy drink space, neither involving equity investment. KDP will sell and distribute the energy drinks by Bloom, a woman-owned company with a strong female following, which also has a handful of non-drink products. And while Black Rifle is primarily a ready-to-drink coffee company, it recently launched coffee-based energy drinks that KDP will distribute.

Assuming eventual ownership of Ghost, that will give KDP a third brand in the mainstream part of that energy/sports/lifestyle sector, alongside Venom, KDP’s self-developed product, and Xyience, fruit-flavored energy drinks that KDP distributes.

Also, Keurig Dr Pepper paid $863 million in 2022 for a 30% stake in Nutrabolt, developer of C4 Energy. And one year ago, the American company announced a partnership with Mexico’s Grupo PiSA to distribute Electrolit hydration drink in this country.

Crossing the hydration, energy and lifestyle categories are Bai, which are uniquely flavored waters, some with caffeine, some with antioxidants, plus flavored ready-to-drink teas; Bonsai sparkling waters flavored with fruit juices; Core Hydration, water with electrolytes and balanced pH; and Limitless flavored waters with caffeine or L-theanine.

So suddenly, there’s lots of energy (drinks) in this company.

Soda remains the core

While energy drinks may become a big part of Keurig Dr Pepper’s future, soft drinks, especially carbonated ones, remain the current foundation. “U.S. Refreshment Beverages,” as the company reports it, accounts for 60% of revenue. Andrew Archambault is president of U.S. Refreshment Beverages.

Dr Pepper has shared a company name with the likes of 7-Up, Royal Crown, Schweppes and Snapple, and all those brands remain in the fold. But the company also has such familiar if nostalgic names as A&W Root Beer, Big Red, Canada Dry, Crush, Diet Rite, Hires, IBC, Nehi, RC, Squirt, Stewart’s, Sun Drop, Sunkist and Vernors (there are even more regional brands).

In the juice and non-carbonated categories, there are Clamato, Hawaiian Punch, Mistic, Mott’s and Nantucket Nectars, besides Snapple. In addition to Clamato and Schweppes, mixers include Mr & Mrs T Bloody Mary and other drink mixers, ReaLemon and ReaLime and Rose’s syrups. Waters include Deja Blue and Penafiel waters (the latter in Mexico). Don’t forget Yoo-hoo flavored milk-like drinks.

Worth noting is that Mott’s in its various forms – applesauce, juices, bars, fruit snacks, hydration beverage – is a billion-dollar brand.

Interestingly, Coca-Cola attempted to acquire Dr Pepper in 1986, but was blocked from doing so by the Federal Trade Commission. KDP owns six beverage production facilities and leases 12 more.

Many of the company’s 125 owned, licensed and partner brands are in the soft drink category – but coffee, through the manufacture of K-cups, certainly has its share.

Coffee business brewing

Despite Dr Pepper having integrated so many different beverages and brands, it was a sea change in 2018 when investors in both companies engineered the marriage of what was then Dr Pepper Snapple Group with Keurig Green Mountain, the latter being half coffee roaster and half manufacturer of coffee brewing machines. Patrick Minogue is president of U.S. Coffee.

The merger, technically an $18.7 billion acquisition by Keurig, enabled the combined company to be publicly traded. It also caused KDP to maintain two corporate headquarters: Frisco, Texas, which had become the base for Dr Pepper, and Burlington, Mass., which was the home of Green Mountain Coffee Roasters.

Green Mountain Coffee Roasters was established in 1981. In 2006, that public company bought brewing-machine manufacturer Keurig Inc. and became Keurig Green Mountain. In 2015, Keurig Green Mountain was acquired by JAB Holding Co. and other investors, including Mondelēz International. JAB continues to be the largest single investor in KDP, holding about 16%.

On the coffee side, too, the list of brands is extensive, most of them the result of licensing agreements. In addition to several varieties of K-cups bearing the Green Mountain name, the company has partnerships or licenses with Cinnabon, Gloria Jean’s, Kahlua, Krispy Kreme, McCafe, Newman’s Own, Swiss Miss and Van Hotte.

In July of 2023, KDP paid $300 million for 33% of La Colombe, a high-end coffee processor that already was majority-owned by Chobani founder Hamdi Ulukaya. That deal involved sales and distribution for La Colombe ready-to-drink coffee and a long-term licensing, manufacturing and distribution agreement for La Colombe-branded K-cups. When Chobani bought all of La Colombe a few months later, KDP's equity in La Colombe turned into a small stake in Chobani.

While the majority of KDP’s sales and interest are in K-cups, the company does manufacture some of those brands in loose ground coffee, in bags and tins. KDP maintains both coffee roasting facilities and plants that package ground coffee into K-cups. The company owns one coffee processing plant and leases five.

After having a good 2022 – sales increased more than 5% – 2023 revenues in the coffee segment returned to 2021 levels. And through three quarters of this year, they’re lagging last year by $76 million.

Keurig Dr Pepper has been building up its distribution network, particularly its direct store delivery, through the acquisition of a number of independent, regional bottlers. The company has 27 owned and 69 leased distribution centers domestically. While not yet rivaling the distribution systems of Coca-Cola, PepsiCo or the beer companies, KDP officials see DSD as a necessity for delivering all those owned and licensed brands.