Keurig The “sweet spot” for growing small brands is identified by Dr. Pepper
The way Keurig Dr Pepper (KDP) has been utilizing some of the blank space in its portfolio is part of a planned strategy. The business signs a distribution deal, invests a small portion of its capital in a developing brand, and leverages its sizable infrastructure to foster expansion. Perhaps more significantly, though, is that the plan is thought to encourage the brand’s founders to keep growing their majority ownership in the company through innovation and brand advocacy.
KDP’s holdings in C4 Energy and La Colombe Coffee Roasters are two instances of the tactic in use. The business spent $300 million in July to buy a 33% ownership position in La Colombe. The investment is a component of a larger collaboration between the two businesses, under which KDP will produce and market La Colombe-branded K-cup coffee pods in Canada and the US, as well as distribute La Colombe ready-to-drink coffees.
KDP invested $863 million in December 2022 to acquire roughly a 30% ownership position in Nutrabolt, the company that owns C4 Energy and its related goods. A long-term sales and distribution deal was also included in the agreement.
Robert J. Gamgort, chairman and CEO of KDP, presented the company’s reasoning behind its strategy on December 5 at the Morgan Stanley Global Consumer and Retail Conference in New York.
He stated, “We chose to have a minority investment in areas where we can have an equity investment.” “Why? because it enables us to spend our capital much more effectively. When they become a long-term partner in the system, we receive the majority of the economic benefits.
Naturally, we earn when we increase the value of the firm in which we have invested, but the founder benefits more since they hold the bulk of the company. And we don’t give a damn since we appreciate that these business owners and founders remain committed and driven to grow the company’s worth even as we collaborate with them to expand their distribution network.
He went on to say that paying “a massive amount of money at a high multiple” to purchase a brand would be the company’s option to this tactic.
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We were unable to locate any examples of successful value creation, not even the $1.7 billion acquisition of Bai by the Dr Pepper Snapple Group in 2016, before its merger with Keurig, Mr. Gamgort added. Therefore, purchasing 100% of a major brand at a significant multiple is not a route to financial success. It has been said time and time again.
However, Mr. Gamgort also stressed that remaining “on the sidelines” and acting merely as a brand distributor will not lead to success.
“Determining the ideal balance between taking an equity position and having agreements with extremely sticky distributions where you receive the majority of the financial gain,