Coca-Cola to Produce, Distribute Bottled Dunkin’ Donuts Coffee
Coke aims to make inroads in U.S. market for ready-to-drink coffee as Dunkin’ takes aim at competitors
ENLARGE 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.
Source: WSJ
