- Keurig Dr Pepper announced it will buy premium water brand CORE Nutrition for $525 million, according to a press release. The acquisition, which is expected to close by the end of the year, will include CORE Hydration, a nutrient-enhanced bottled water, and CORE Organic, a USDA-certified fruit-enhanced "hydration" beverage.
- Keurig Dr Pepper has managed two-thirds of CORE's U.S. distribution channel for years now. Once the deal closes, CORE Hydration and CORE Organic will continue to be distributed through Keurig Dr Pepper’s company-owned direct-to-store delivery network, its independent distributor network and other select distribution partners.
- "CORE has been a valued and successful allied brand partner, and we are pleased that this on-trend beverage will become part of our owned KDP family of brands. Our sales and distribution capabilities have helped fuel significant growth for the CORE portfolio. Through this transaction we intend to realize the full growth potential for the business," Keurig Dr Pepper CEO Bob Gamgort said in a statement.
Consumer distrust of sugary beverages is at an all-time high, pressuring soda giants to pivot away from their flagship soft drinks and embrace healthier beverages and snacks instead. So it’s not surprising that Keurig Dr Pepper is looking to expand its beverage portfolio into premium, healthy bottled water as its first move since its merger.
Rather than reach for soft drinks, today's consumer is looking for healthier alternatives including tea, coffee, juice and varieties of water. In fact, the bottled water industry reached $24.1 billion in sales last year, according to Beverage Digest data cited by Bloomberg, driven by health-conscious consumer demand. Although soda remains a large part of the beverage industry’s revenue, consumers continue to cut back on carbonated beverages, with volumes dipping for 13 years in a row.
The acquisition of CORE was a natural progression of the Keurig Green Mountain and Dr Pepper Snapple merger, as Keurig controlled the majority of the water brand's distribution channel. Previously, the company also controlled distribution for Fiji water, but Fiji ended the partnership following Keurig's announcement that it would acquire the soda giant.
"We believe that some allied brands are still re-evaluating their relationship with [Keurig Dr Pepper] following the close of the Keurig/[Dr Pepper Snapple] merger and believe that [Keurig Dr Pepper] may have no choice but to acquire some of them in order to avoid losing them to new distribution partners (as has been the case already with FIJI and BODYARMOR)," Wells Fargo analyst Bonnie Herzog wrote in a note.
Keurig Dr Pepper’s decision to acquire CORE also puts the company head to head against competitors PepsiCo and Coca-Cola.
Before her retirement, PepsiCo CEO Indra Nooyi made one last move to shift the company into healthy beverages by acquiring SodaStream. This was the latest in a string of acquisitions and product launches that broadened PepsiCo's foothold in the healthy beverage market. In recent years, PepsiCo introduced LifeWTR bottled water, acquired kombucha company KeVita, rolled out an organic version of its classic Gatorade brand, and launched the sparkling water brand bubly to compete against premium water heavyweight LaCroix.
Coca-Cola is working on branching out too. In October, the company purchased Topo Chico, a premium sparkling mineral water, and teamed up with McDonald's to introduce the popular McCafe Frappes in grocery stores. On top of that, the company also owns Smartwater, ZICO coconut water and Appletiser. The brand has also been investing in its diet drink products by reformulating its Coke Zero beverage and introducing new Diet Coke flavors.
By acquiring CORE, whose net sales have grown at an average annualized rate of about 115% over the past three years, Keurig Dr Pepper is now in virtually every beverage space from traditional sodas and on-trend coffee drinks, teas and juices to nutritional water.
"Our view of the industry through the lens of consumer needs, versus traditional manufacturer-defined segments, unlocks the opportunity to combine hot and cold beverages and create a platform to increase exposure to high-growth formats," Gamgort said in a statement after the company announced it would acquire Dr Pepper Snapple. "The combination of Dr Pepper Snapple and Keurig will create a new scale beverage company which addresses today’s consumer needs, with a powerful platform of consumer brands and an unparalleled distribution capability to reach virtually every consumer, everywhere."
How far Keurig Dr Pepper chooses to venture into the premium water space remains to be seen. With almost every major beverage company now racking up deals in the health-infused water space, it's an open question whether there is room for more M&A or if the space is soon to become overcrowded.