Keurig Dr Pepper announced this morning that it is investing $300 million in Philadelphia-based coffee company La Colombe, making it the second largest investor in the brand – behind majority owner and chairman Hamdi Ulukaya – with a 33% equity stake.
The long-term licensing, manufacturing and distribution agreement positions KDP to expand its coffee portfolio with a trailblazer in the ready-to-drink category. La Colombe is expected to benefit from KPD’s distribution network and the beverage giant’s influence on the coffee pod segment while using the capital infusion to “accelerate growth and pay off debt,” the company reported in a press release.
According to the two companies, KDP will begin distributing La Colombe products later this year with a launch of a K-Cup line planned for sometime in 2024.
“We are excited to partner with Hamdi and the La Colombe team to drive value for both companies,” KDP chairman and CEO Bob Gamgort said in a statement. “This partnership will enable KDP to expand its reach into high growth ready-to-drink and super premium coffee segments and will meaningfully increase La Colombe’s availability to consumers.”
The expansion of its premium and RTD offerings comes as KDP has seen a slight decline in its coffee business. On its most recent Q1 earnings call, KDP leadership reported that coffee segment net sales decreased -1.3% to $931 million during the quarter as net prices increased 5.3% and volume fell -6.6%.
The deal allows KDP to stanch some of the losses that are coming in its K-Cup business – sales dropped -6% in 2022 – and gives it another shot at tapping into the RTD coffee category, which has grown significantly in the past few years, powered largely by innovative, premium brands like La Colombe itself, as well as rising competitors such as Califia, STOK and Black Rifle.
KDP has been steadily building out a premium coffee pod business, landing recent partnerships with Philz, Intelligentsia and BLK & Bold. While La Colombe serves as a solid addition to its K-Cup business, the partnership represents an even more serious play in the RTD category for the strategic, with La Colombe’s vertically integrated canned coffee business giving it a new brand to pit against Starbucks’ Frappuccino and other brands like Monster and Super Coffee.
La Colombe started as a cafe and coffee roaster more than 30 years ago. The company initially made waves in retail with cold brew and single-serve nitro-infused lattes, the brainchild of co-founder and former CEO Todd Carmichael, who largely left the brand’s leadership team in 2021.
According to figures provided to BevNET by Circana, as of April 23, La Colombe’s RTD draft latte and other single-serve products had trailing 52-week sales in combined retail channels (including C-Store, Grocery, Drug, Mass Market, Military and select Club and Dollar stores) of just over $28 million (a -4.3% decline over the previous 52-week period), while its ambient cold brew had sold just over $12 million during the same period (down -9.3%) and refrigerated coffee sales were at about $24 million, up 86% over the same time. Those retail figures don’t include the brand’s robust vending and on-premise sales, its cafes, ecommerce, or its roasting business.
The joint announcement noted that the $300 million investment represented a multiple of approximately three times La Colombe’s expected net sales for 2024. KDP will participate in any value created from the deal – something that worked well for the company with the sale of BodyArmor to Coca-Cola, for example, when the company took home approximately $800 million for its 12.5% stake.
For La Colombe, the deal with KDP is not its first partnership with a major beverage distributor.
In October 2020, La Colombe signed a 10-year distribution agreement with Molson Coors that seemed to be going well when Pete Marino, at the time serving as Molson Coors’ president of emerging brands, announced it was putting La Colombe in conventional and big box store channels nationwide. But that partnership ended abruptly with Molson Coors announcing in November 2022 that it was phasing out its interests in both ready-to-drink coffee and CBD beverages.
“One of the lessons we’ve learned is to quickly identify when something just isn’t going to work for us, or for you,” Marino said at the time. The partnership effectively ended March 31, 2023.
KDP has shown it can bring a brand with a built-in following to new heights. Late last year, KDP invested $863M in Nutrabolt, makers of C4 Energy drink. The energy brand’s sales are up nearly 85% in the last 52-week period and 69% in the last 12-week period ending July 11, according to Nielsen IQ scan data.
The partnership reifies KDP’s interest in building out its portfolio through strategic deals and investment. While it’s made no right out purchases in recent years, CEO Bob Gamgort said in 2021 that the company had up to $20 billion available for M&A initiatives to fill white space in its portfolio.
“With a 30-year legacy of delivering the best coffee and exceptional brand experiences for our customers, we have become a beloved coffee brand with the highest standards of quality. This remarkable journey sets the stage for our continued expansion, and partnering with KDP is the ideal next step to accelerating our growth and continuing our mission of making people happy with coffee,” said Chuck Chupein, President of La Colombe.