Despite challenges from the COVID-19 pandemic, Keurig Dr Pepper (KDP) reported strong growth in its business during Q2, with the company’s diversified, omnichannel strategy helping offset significant losses in impacted channels, according to an earnings report this morning.
Net sales grew 1.8% to $2.86 billion in the second quarter. On a constant currency basis, net sales increased 2.9% with “strong” volume/mix growth of 4.3%, which was partially offset by a lowered 1.4% net price realization.
In particular, the company’s Keurig brewers and K-Cup coffee pods “more than offset” declines in the office coffee and hospitality channels, the company stated in a release. As well, “strong in-market execution” for its CPG beverage business offset drops in the convenience and gas channels.
In a call with investors and analysts this morning, KDP CEO Bob Gamgort said the results were “a testament to the dedication and commitment” of the company’s employees.
“As you know, the environment in which we are operating continues to be extremely volatile with COVID cases spiking again forcing some regions into a second phase of shutdown, all of which impacts consumer mobility and beverage consumption behavior,” Gamgort said. “KDP was performing exceptionally well before the crisis. We delivered well for all stakeholders during the crisis as evidenced by the results we’re discussing today, and we fully expect to emerge as an even stronger company when we get to the other side.”
In carbonated soft drinks, Gamgort said KDP gained 1.2 share points and became the second top selling player “in a number of key grocery customers, driven by broad-based core brand strength, strong in-market execution and innovations such as Dr Pepper & Cream Soda and Canada Dry Bold.” The Dr Pepper brand, he said, has now delivered 17 consecutive quarters of retail growth and Canada Dry has increased sales for 13 consecutive quarters.
Ahead of the call, KDP announced a long-term manufacturing and nationwide distribution agreement with Polar Seltzer for its 35-SKU line of seltzer products, giving the company a stake in the fast-growing sparkling water category where competitors such as Coke (AHA) and PepsiCo (Bubly) have quickly gained ground.
According to Gamgort, despite being one of the largest sparkling water brands in the U.S., Polar is only available in about 35% of the country. Nielsen All-Channel Data for the week of July 11 reported that Polar is the fifth largest brand in the category with over $209 million — up 13.1% — in annual dollar sales, trailing only Talking Rain, National Beverage Corp, PepsiCo and Nestle.
“You’re seeing explosive growth [from Polar] and we, as I said before, could have come at this just by an acquisition, we could have come at it by trying to develop our own brand and we thought this was the best way to go,” Gamgort said during the call’s Q&A portion. “This is the highest velocity brand in the category. They have one challenge, and that is they’re only in about a third of the country.”
The partnership comes six months after KDP acquired caffeinated sparkling water brand Limitless in January for an undisclosed sum. Gamgort noted that Polar, a family-owned company, is “not for sale” and there are no intentions of eventually acquiring the brand. He stated, however, that the brand is KDP’s “lead play” in the category.
“To be able to sit down with [Polar], who we’ve had a long and successful relationship with and come up with this win-win scenario, says that we can move forward in these spaces without having to necessarily buy something outright and we get all the benefits from it,” he said. “And then if you take a look at Polar, they get the benefits of maintaining ownership of the brand and experiencing now what will be a national brand for them.”
In addition to Polar, KDP also announced it had invested in Don’t Quit!, a brand of meal replacement shakes founded by Body by Jake CEO Jake Steinfeld and beverage incubator L.A. Libations. The line will launch into 2,500 retail stores nationwide next month and KDP has a pre-negotiated path to ownership.