Coca-Cola is not yet out of options

Coca-Cola is not yet out of options

It is no coincidence that, on the same day Cott Corp said it is “evaluating” its options, the Coca-Cola Co announced its move into the at-home carbonation machine market with a US$1.25bn tie-up with Green Mountain Coffee Roasters.

Both developments are connected to declining CSD sales in North America. However, while Cott Corp's statement yesterday suggested a company that is running out of options, Coca-Cola is still a way off reaching that point.

Instead, as North American sparkling beverages continue their long-term decline, Coca-Cola is hunting down new revenue streams, as well as new ways to package its core sparkling brands.

According to one analyst, it has found it.

“Overall, we view this as very positive as we believe this could help reignite CSD volumes,” Well Fargo's Bonnie Herzog says today (6 February). Herzog called it a “bold and surprising move” that will “grow the category incrementally as it creates new consumption occasions”.

The analyst also believes the profitability of the 'pods' used in home carbonation machines will be greater than that from cans, and will help to drive Coca-Cola's margins in the long term.

Stifel analyst Mark Swartzberg is far less enthusiastic about the deal, however, calling it “lopsided” in favour of Green Mountain.

“The opportunity is small” for Coca-Cola, he says, noting that sales in the category would likely amount to no more than 1% of the company's total.

The analyst also wonders why Coca-Cola didn't use the investment money to create its own machine instead of piggybacking on Green Mountain's upcoming Keurig Cold. “Even though Keurig Cold could offer alternatives to Coca-Cola products, Green Mountain has an exclusive with Coca-Cola, preventing Coca-Cola from partnering with other single-serve platforms,” Swartzberg said.

Both analysts, however, agree that the new deal could harm Coca-Cola's relationships with its bottlers. Herzog notes that the Keurig Cold allows consumers to become “his/her own bottler”.

“We believe this partnership could accelerate the decline of packaged CSD beverages in the take-home channel, which could have an incremental negative impact on Coca-Cola bottlers,” she says.

Swartzberg also suspects that bottlers “will be troubled by this relationship”.

For just-drinks' opinion on the Coca-Cola/Green Mountain partnership, click here.