There’s little doubt that the market likes the prospect of what a partnership with The Coca-Cola Company (KO) could do for Green Mountain Coffee Roasters (GMCR). When Green Mountain announced last week it would be building a soda-making appliance capable of mixing Coke’s famous carbonated flavors for at-home consumers, KO stock brightened up a bit, while shares of GMCR stock jumped 26% in one day.
And why not? Ten years ago, single-serve coffee brewers were a rarity, even in offices. Now single-serve coffee makers are common, so much so that Green Mountain Coffee Roasters sold 9.8 million of the famous Keurig brewing machines and 8.3 billion single-serve coffee “pods” last fiscal year. If they can make something out of nothing for coffee, why couldn’t they do the same for soda?
As is always the case, though, there’s a flip side to this coin — particularly for Coca-Cola and KO stock.
This endeavor might not be the game-changer many seem to think it could be for the carbonated beverage industry … for three reasons.
1. The Keurig Cold solves a problem that doesn’t exist, and in so doing, creates other problems.
Clearly the success of Keurig single-serve coffee brewers has stoked optimism among GMCR stock holders that the same kind of demand could be whipped up for a Keurig cold/carbonated drink maker. But that might be an overly optimistic assumption.
See, the single-serve coffee brewers do something that isn’t easy or convenient to do, eliminating the annoying aspects of coffee. Coffee is usually enjoyed hot (and heating water can take time), and even though most coffeemakers only make a pot of coffee, most coffee drinkers only need one cup of java … not four or more cups. Keurig brewers make one cup of hot coffee, fast. Thus, the Keurig brewer just makes good sense.
Soda, while also usually consumed one serving at a time, is almost exclusively enjoyed cold — a problem for the GMCR/KO venture because consumers already have an easy, clean and fast solution to the cold and single-serving problems.
It’s called cans and bottles tucked away in a refrigerator.
Unlike Keurig coffee brewers, the Keurig Cold offers no real advantage compared to the current alternative means of drink-dispensing. Never mind the fact that anytime sugary syrup is mixed with water, a sticky (and sometimes bacteria-laden) mess can ensue, and never mind the fact that the Keurig-blended Coke could cost two to three times as much as, say, a can of Coke would.
2. Soda sales are falling not because soda is inconvenient, but because soda is increasingly seen as unhealthy. Making soda at home doesn’t make it less fattening.
Consumers have spoken: They’re steering away from sugary soft drinks in an effort to reduce caloric intake. In 2012, for the first time in a couple of decades, the average U.S. consumer drank more water than soda, and it wasn’t for convenience reasons.