Keurig Finally Launches Its Kold Machine

And finally, the long awaited at-home carbonation system called Keurig Kold from Keurig Green Mountain has been launched. These machines will dispense products from The Coca-Cola Company (NYSE:KO), including Coca-Cola, Diet Coke, Coke Zero, Sprite, and Fanta, and Dr Pepper Snapple (NYSE:DPS), including Dr Pepper and Canada Dry, in addition to six of Keurig’s own brands created exclusively for the Kold system. Considering the continually ailing sales of soft drinks in the U.S. (category volumes have declined for ten consecutive years), beverage makers could very well use a helping hand, or a countertop appliance, to boost sales. The Keurig Kold has both its pros and cons, so let’s weigh them.

We estimate a $42 stock price for Coca-Cola, which is above the current market price.

See our full analysis for Coca-Cola

Revolutionizing The Cold Beverage Category To Bring-In Meaningful Sales?

At-home carbonation has emerged as an additional platform for soft drink consumption. This market might not be able to bring back consumers to the CSDs, but due to the ease of carrying compact flavor sachets, and the convenience of in-house consumption, the intake-rate of avid customers could increase. Here’s why Keurig Kold could draw-in customers:

• Unlike the SodaStream systems that use carbon dioxide cylinders and allow customization of fizzy drinks, Keurig Cold systems will use precisely formulated single-serve pods to prepare the familiar tasting and valued Coca-Cola and Dr Pepper soft drinks. Keurig systems aim to do away with the refilling of carbon dioxide cylinders, and also provide a quicker, cleaner, and precise creation process.
• Keurig might have an edge in the do-it-yourself hydration category, due to the absence of major rivals. SodaStream’s penetration in the U.S. household remains below 2%.
• The Keurig Kold system provides more options to customers, backed by products from Coca-Cola and Dr Pepper, which have a combined share of ~60% in the U.S. carbonated soft drinks (CSD) market, in addition to its own brands of soda, sparkling water, iced teas, and sports drinks.
• The Keurig Kold will deliver beverages at an eight-ounce portion size, and nearly all beverages will have 100 calories or less. While the CSD category has more or less suffered slowing sales for some years now, sales of smaller packages have spiked, as customers prefer the idea of consuming lower cumulative calories. This has prompted the likes of Coca-Cola and PepsiCo to focus on the smaller-sized bottles and cans. The 8 ounce beverages with lower combined calories might seem attractive to consumers.

The cold beverage category opens Keurig to a new $50 billion market, five times the size of the hot beverages market (tea bags, coffee, and hot cocoa) in the U.S. ^[1] So a lot rests on this product to revitalize Keurig Green Mountain, whose stock has plunged 60% year-to-date. Growth for the Keurig Kold will also translate into incremental sales for Coca-Cola and Dr Pepper, and especially for Coca-Cola, which holds a 16% stake in Keurig Green Mountain.

However, several reasons suggest that the Keurig Kold could be a bust rather than a boom, or at least take a while or two to take off.

Revolutionizing The Cold Beverage Category Asks For Big Money In Return

The Keurig Kold system, which will use single-serve pods to make an 8-ounce glass of cold beverages, is priced from $300 to $370 apiece. That’s already steep, and becomes even steeper when including the price of pods. The Kold pods would sell for $4.49-$4.99 for a four-count box. Every negative surrounding the Keurig Kold and whether it can become a ‘must have’ countertop appliance starts with the machine being too expensive. Over a $1.10 per drink might be too much to ask for, considering the CSD category is already facing headwinds due to the growing health and wellness concerns.

In addition, the rollout of the machine has been slow. Keurig Kold will be sold on the company’s website and at select retailers online and in six cities, including Atlanta, Boston, Chicago, Dallas, Los Angeles, and New York, starting in October. If the machine becomes popular, the consumption of cold beverages is likely to get a boost due to the ease and convenience of using these pods with a compact machine at home, but the price per drink and the steep price of the machine might dissuade customers.

Keurig earlier in May admitted that the price of the Keurig 2.0 brewers might be too high at roughly $150 a piece, and later introduced less expensive models. The price of the Keurig Kold is also expected to come down in time, as sales ramp up and when the nationwide distribution begins.  But till then, the premium for each drink might be a large enough factor to prevent customers from buying the $370 machine.

See the links below for more information and analysis:

• Pepsi, Coke, Dr Pepper and the at-home carbonation market: let the games begin!
• Rising on domestic growth, Dr Pepper’s first half has been solid
• PepsiCo earnings review: snacks and beverages make a good marriage?
• Bottled water is a potential growth category that can’t be ignored
• Soda makers wonder: where could growth in U.S. come from?
• The strong dollar is weighing down these large beverage companies
• Trefis analysis: Dr Pepper North America CSD Revenues
• Trefis analysis: PepsiCo Soft Drink Revenues
• Trefis analysis: Coca-Cola Revenues

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1. Keurig’s Kold: is it worth the price, cnn.com [↩]