No longer will homemade soda fiends be relegated to sipping generic-label cola.
Coca-Cola (KO) announced on Wednesday that it’s buying a 10 percent stake in Green Mountain Coffee Roasters (GMCR) for $1.25 billion. It’s not a move to get into the coffee business but rather an aggressive push to compete directly with SodaStream (SODA), which sells do-it-yourself carbonation machines as well as the flavor syrups that go with them. Coke will be the first company to feature its brands in Green Mountain’s new Keurig Cold machines, set to debut in 2015.
Keurig Cold will make soda and noncarbonated drinks like juices and teas using pods similar to those in Green Mountain’s Keurig coffee brewers. That means consumers could soon make their own Hi-C or Fuze, not just home-bubbled Diet Coke or Sprite. Compatibility with familiar and valued soft drink brands is clearly going to be the selling point, just as it is with the big coffee brands such as Starbucks (SBUX) and Dunkin’ Donuts (DNKN) available as K-Cup pods.
“In hot beverages, the power of Keurig comes from the fact that we have the world’s best coffee brands on it,” Green Mountain Chief Executive Officer Brian Kelley told reporters on a call Wednesday evening. “So the strength of the Keurig Cold system is that we will have the best cold brands on it, and those are the Coca-Cola brands.” This is not an exclusive partnership; Green Mountain will also look for deals with other companies, although Kelley declined to offer further details.
The alliance may be a bad recipe for SodaStream, which currently dominates the DIY cold-brew market. The Israeli company’s machines are now in 7 million homes, a majority of which are outside the U.S., and it has locked up licensing deals with popular beverage brands, including Kool-Aid, Ocean Spray, Crystal Light, and Country Time Lemonade. SodaStream lacks a powerful soft drink partner, so the company’s little flavor pods simply say “Soda Mix” on the side—a hard matchup against the best-selling cola world. The new competitive environment promises to pit SodaStream’s “Diet Orange Mango” against Keurig Cold’s Fanta.
This is a fight SodaStream has been itching to have for some time, at least if you believe its swaggering advertising. The upstart has built its identity as the alternative to big soda, and the original television ads it submitted for the last two Super Bowl broadcasts directly attacked Coke and Pepsi. Here’s the most recent attack ad. Both spots that ultimately aired were revised to remove direct criticism of two major Super Bowl advertisers.
There was talk in June of PepsiCo (PEP) snapping up SodaStream, chatter that the soft drink giant quickly refuted at the time. Given Coke’s deal today, PepsiCo may want to reconsider the proposition; the company declined to comment. SodaStream shares were down almost 10 percent in after-hours trading.