Fiji Water is phasing out its distribution arrangement with Keurig Dr Pepper by October and will be handling more direct distribution of its bottled water products. The brand will be implementing a direct store delivery network supported by The Wonderful Company, its Los Angeles-based owner, BevNET reported.
Clarence Chia, Fiji's vice-president of marketing, told BevNET the change was "a direct result" of the $18.9-billion merger of Keurig Green Mountain and Dr Pepper Snapple Group completed July 9.
There is speculation among analysts that Fiji's departure could be followed by other Dr Pepper-distributed brands, and that leaders of the newly merged Keurig Dr Pepper may not be interested in maintaining minority stakes in products such as BodyArmor sports drink, potentially putting it on the market.
Following the creation of the Keurig Dr Pepper beverage giant this week, Fiji Water, which has been part of Dr Pepper Snapple Group's allied brands portfolio, is going out on its own. Although it has distributed a number of licensed brands for years, including Fiji Water, Sunny Delight and Big Red, Dr Pepper had no financial stake in Fiji as it does in High Brew Coffee and BodyArmor.
BevNET noted that these allied brands had the chance to exit before the merger closed, but most of them didn't because they didn't have acceptable distribution options. The Dr Pepper Snapple distribution network extends to 70% of the U.S., the publication added.
It's not clear whether Fiji is leaving its longtime distribution arrangement with Dr Pepper Snapple voluntarily. In any case, it's fortunate that the brand has a parent company with extensive distribution expertise already in place, although it may be difficult to equal the reach it had before.
Bonnie Herzog, an analyst for Wells Fargo Securities, noted "the increased risk of defections" from Dr Pepper's key allied brands could be a potential negative headwind for Keurig Dr Pepper. She also said it's possible that BodyArmor could be sold to a larger beverage firm such as Coca-Cola Co.
"We don't think the new Keurig Dr. Pepper management team is interested in maintaining minority stakes (such as those Dr. Pepper undertook with its allied brands)," Herzog wrote. "As such, we think there's a good chance BodyArmor could seek out a new partner/owner and we think Coca-Cola would be very interested in the brand given its success ... . We think Coca-Cola would position BodyArmor as a premium, isotonic brand above Powerade."
Selling its approximately 15% stake in a popular brand such as BodyArmor would likely result in a meaningful financial gain for Keurig Dr Pepper that it could invest in other parts of the business. The beverage giant, which brings together Keurig's single-serve coffee brewing products with Bai Brands, 7UP, Canada Dry, Sunkist and A&W, among others, will have more than $11 billion in combined annual revenues.
If Coca-Cola does end up with BodyArmor, it could mean a big boost for its energy drink line and better position its Powerade product to compete with PepsiCo's popular Gatorade brand, the dominant leader in the space with about three-quarters of the sports drink market.
BodyArmor's growth is primarily due to its better-for-you sports drink profile since it contains coconut water, more electrolytes and less sodium than typical offerings in the category. According to TheStreet, BodyArmor could hit $400 million in sales this year compared to $235 million last year.