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At-home coffee drinking surge could last beyond COVID-19 – Keurig Dr Pepper CEO

Keurig Dr Pepper Inc.'s CEO said July 30 that increased coffee consumption in households will continue even once the pandemic is under control and business offices reopen. Meanwhile, the beverage company also added a new sparkling water to its lineup and invested in a protein drink aimed at older consumers.

In the second quarter, Keurig Dr Pepper's volume for coffee pods grew 9.5% year over year, and volumes for brewing machines grew 11.6% year over year mainly because more people were drinking coffee at home. The growth in these parts of the coffee business was offset by significant declines in Keurig Dr Pepper's large office coffee business and, to a lesser extent, its hospitality business.

Still, Keurig Dr Pepper Executive Chairman and CEO Bob Gamgort said during a post-earnings call that drinking more coffee at home now is a trend that will continue even after people return to offices they left behind because of the pandemic.

"We've seen that for years now that when somebody decides to move from brewing coffee by the pot to brewing coffee by the cup, or in the case that we have right now, people who weren't making coffee at home making it at home now using a Keurig machine, that's incredibly sticky," Gamgort said. "The dropout rate from the system is very, very low."

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Keurig Dr Pepper could hang on to some of the increased at-home consumption when people realize that making coffee from home is easy and saves money and that the quality of the coffee is better than they may have expected, Gamgort said.

Keurig Dr Pepper reported second-quarter profits and revenue that beat expectations. Shares in the company rose nearly 2% in early trading July 30 but fell by 2.7% at $30.43 by midday amid a broader decline in markets.

Polar bull

Keurig Dr Pepper announced July 30 that it entered a long-term franchise agreement with Polar Beverages for national distribution of Polar's sparkling seltzer waters across all channels using Keurig Dr Pepper's direct store delivery and manufacturing network. Terms of the deal were not disclosed.

Polar Seltzer is the third-largest brand of flavored sparkling water in the U.S. but is only available in less than 35% of the country, Keurig Dr Pepper said in a separate July 30 release on the deal. The sparkling water category grew more than 15% in retail dollars over the past year, according to the company.

Keurig Dr Pepper expects to begin seeing the benefits of the Polar agreement in 2021, Gamgort said.

"People like bubbles," Gamgort said. "I don't see any signs of that slowing down because it's representative of a shift in consumer preferences towards healthier, but also just less flavor, less sweetness in general."

A franchise agreement with Polar was a better way to continue tapping into this trend rather than doing another acquisition or trying to develop its own brand, Gamgort said. Keurig Dr Pepper's portfolio includes Canada Dry and Schweppes, which both offer sparkling water products, and in 2019 it acquired Limitless, a functional sparkling water that Keurig Dr Pepper is still developing. Functional waters are infused with healthful ingredients.

"We think taking that brand in partnership with them and making it national is the best way for us to leapfrog in this category," Gamgort said of the Polar agreement. "Like many large (and) growing categories, the best way to access them is through multiple plays, but be clear, the Polar play is our lead one."

Additionally, Keurig Dr Pepper announced a seed investment that could lead to ownership of Don't Quit, a meal-replacement protein drink line aimed at baby boomers. The brand will launch in the coming weeks, Gamgort said.