Over the past six months, Vermont based K-cups maker Keurig Green Mountain (NASDAQ:GMCR) has struck several distribution deals in the market with the aim of accelerating the company's top line growth. The company once again announced another multi-year licensing, manufacturing and distribution deal with Kraft Foods, one of the biggest names in the packaged foods and beverage industry, on August 22.
The main highlight of this deal is that Keurig Green Mountain will now present its at-home and away-from-home channel with Kraft Foods' popular branded coffees in the Keurig portion pack formats such as the K-Cup, K-Carafe and Keurig Bolt Packs. The deal between the two companies is to work together on manufacturing the branded portion packs, but a slow transition is set to take place that will allow Keurig to manufacture the packs using coffee that will be sourced and processed by the food giant, Kraft Foods.
The launch is set to take place in early fall of this year, around about the same time when Keurig has scheduled the release of its next-generation Keurig 2.0.
Keurig and its collaboration with other coffee brands
Keurig's interest in adding large coffee brands to its portfolio has not been a secret. In the past few years, the company has been successful in signing various distribution deals with some large brands including Starbucks Corporation (NASDAQ:SBUX), Dunkin' Brands (NASDAQ:DNKN) and Peet's Coffee (NASDAQ:PEET). These deals turned out to be instant successes in their own way as they were not only convenient for consumers but were also being sold on nominal rates without any slip in taste or quality.
Keurig's deals with Starbucks and Dunkin' reduced competition for Keurig itself, making them extremely successful deals for Keurig Green Mountain.
Apart from the latest announcement of distribution agreements with Kraft, Keurig also collaborated with companies such as Nestle U.S., Coca-Cola (NYSE:KO) J. M. Smucker Co (NYSE:SJM) and Subway, brands that have a strong appeal and large customer base. These deals varied based on structure when compared to the deals that were made with coffee companies but they were all part of the same strategy that Keurig stepped into the market with - to expand its reach to the people by offering them more options.
Kraft not far behind
Before striking a deal with Keurig Green Mountain, Kraft foods managed to collaborate with McDonald's Corp (NYSE:MCD) to arrive at one of the most talked about deals of its time. The deal was signed with the intent to expand the production and distribution of McCafe, a popular brand for McDonald's. The agreement made Kraft foods responsible for distribution of McCafe products in stores in order to make the brand more accessible, and increase its reach to consumers.
Keurig's share response to the deal
Keurig's share price made a magnificent jump by 12% following the announcement of its deal with Kraft. Its price went up to a remarkable $131.9. Kraft's stock however experienced a mini dip of about 0.14% at $57.33 the very same day at nearly 12 pm EDT.
The Executives Give Their Opinion
Following the agreement between Keurig Green Mountain and Kraft, Brian Kelley, President and CEO of Keurig, said,
"We hear time and time again that consumers consistently choose the Keurig brewing system for the quality, simplicity, value, and, most importantly, the variety of brands and beverages available in the system. Adding Kraft's celebrated brands to the licensed Keurig family means Keurig consumers will be able to enjoy even more beverages they know and love with the quality and consistency they expect from their Keurig brewer."
Following the deal, Dino Bianco, The Executive Vice President of Kraft and President, Beverages, said, "At Kraft, we have made significant strides in rejuvenating our coffee business across all segments - including mainstream, premium and on-demand - by focusing on driving profitable growth for our brands and our customers."
He presented his opinion on the agreement as well by saying that it offers the company an opportunity to expand its distribution across multiple channels and is an example of how the company is focused on achieving long term growth through its actions.
Looking at the trend of the past 12 months, the segment of single-cup coffee has experienced the fastest growth in the industry. The market share for K-Cups went up to 26% in 2013, from a 6% share in 2011. By September 2013, branded K-Cup sales accounted for 45% of the total K-Cup sales volumes, which were about 79% combined. Based on these figures, it seems as though the latest deal between Keurig and Kraft is another incredible opportunity for Keurig to strengthen its hold over an already rapidly expanding coffee market share.
This deal is very likely to impact the stock of Keurig Green Mountain. Investors saw just a glimpse of the positive following the announcement of this deal when stock price for the company increased. This upswing is bound to continue following the launch of the Kraft products by Keurig, which will inevitably boost sales for the company and in turn lead to capturing more market share.
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