For a long time, the world of cold and hot beverages has been dominated by Coke, Pepsi and Starbucks. But along with the pandemic came a surprising new player, Keurig Dr Pepper (KDP), who’s businesses are booming.
Dr Pepper, who has a stable of many soft drinks including Dr Pepper, Canada Dry, A&W Root Beer, 7 Up, RC Cola and several others, acquired Keurig, the coffee machine and coffee-pods maker, two years ago. The current CEO of KDP came to the company as part of that Keurig and Dr Pepper merger. He had been serving as the CEO of Keurig.
So just how has the CEO gone about driving the Dr Pepper and Keurig businesses to success? Here is what the fast-acting and clever leader did:
Coffee – Keurig developed a research panel of 10,000 users of its Keurig at-home brewing machines linked to its data center, so it can watch machine use, and even which brand of pods are being used. In early March this year Keurig saw that people were not leaving home, and were drinking a lot more coffee at home, since they were no longer at work or going to Starbucks.
Seeing this, Keurig dropped the price of its machines to feed the trend, and Increased pod capacity massively, which was really needed since the surge in business occurred immediately. They produce pods for their own coffee bands, such as Green Mountain, and have license agreements with other companies to produce pods for them ( including McDonald’s McCafé, Starbucks, and Dunkin’ Donuts). Keurig had an 82% market share of pods even before the surge.
Beverages – Since the coffee data showed people were staying home, the CEO of KDP figured restaurants and workplaces would experience big drops in soda usage. Hence, he bet Dr Pepper and its many brands would be seeing big increases as home usage increased. He knew cans are preferred over bottles, but US can capacity was tight even before the pandemic.
The CEO promptly went to Mexico and lined up large can manufacturing capacity. He also went to the big volume retailers like Walmart, Costco, and Kroger, and promised he could make big volumes of large 24 and 12 can packs, since they were about to see consumers needing a lot more soda at home. Seeing the Keurig stay-at-home data convinced those retailers he was right and they began buying big quantities of KDP sodas in those ideal larger sizes.
So, what are the results? For the first nine months of 2020, KDP profits grew 15%, while that of Coke dropped -11% and Pepsi was basically flat. Market shares at KDP are also up smartly. As one beverage industry analyst put it: “KDP has clearly done the best job of any beverage company in navigating the virus crisis.”
Stepping back, the technology innovation that Keurig developed (the internet-connected 10,000 user panel), and the quick, gutsy decisions of the CEO back in March, are key lessons to learn from.