- Keurig Dr Pepper is entering into a long-term agreement with McDonald's to source, distribute and market all of its McCafé packaged coffee grounds and beans in the U.S., starting in the last half of 2020, according to a release.
- This new agreement ends the partnership that McDonald's had with Kraft Heinz, which started selling packages and K-Cups of McCafé in 2015. Keurig Dr Pepper previously manufactured McCafé K-Cup pods for the U.S.
- "We are prioritizing making McCafé a go-to coffee brand for our customers, and we are confident this move will strengthen the impact of the McCafé brand in retail," McDonald's USA Vice President of Menu Innovation Linda Van Gosen said in the press release.
This new partnership could be a win for Keurig Dr Pepper. As the retail coffee market continues to grow, this agreement adds to the company's portfolio of signature coffees and sodas with recognizable brand names, which already includes Green Mountain Coffee Roasters, Keurig and The Original Donut Shop.
More food and beverage giants are entering into the coffee space as consumption hits record highs. The U.S. coffee market is forecasted to grow at a CAGR of 8.1% from 2019 to 2024, according to Mordor Intelligence. That growth has been facilitated by the rising number of coffee drinkers. About 64% of American adults drink a cup of coffee each day, which is the highest penetration since 2012, according to a survey from the National Coffee Association cited by Reuters. The National Coffee Association found that more than 70% of consumers now prefer at-home coffee preparation, so it makes sense that more brands want into the coffee retail space.
But as the consumer market grows, so does the competition. Other food and beverage giants have been increasing their holdings in the space. Nestlé paid $7.15 billion to Starbucks last year to sell the coffee chain's branded coffee beans and affiliated products in grocery stores. Coca-Cola bought European megabrand Costa Coffee last year for $5.1 billion, and J.M. Smucker recently revamped its Folgers brand with its 1850 line.
It isn't surprising that the partnership between McDonald's and Kraft Heinz would break down at this time. In February, Kraft Heinz posted a $12.6 billion net loss. Its stock price plummeted about 28% in a day, and the company is still working to recover. CEO Miguel Patricio took the helm of the company in July, pledging to concentrate on revitalizing Kraft Heinz's own brands.
In the release about McCafe's new partnership, Kraft Heinz General Manager of Coffee Peter Eck said the company will be "actively exploring all options to grow, innovate and win in coffee with our own brands." And the CPG giant is already finding some opportunities there. This week, Kraft Heinz announced a partnership with Diageo's Baileys to make and sell nonalcoholic beans and RTD beverages with the flavor of the Irish cream brand.
Keurig Dr Pepper has experience with similar distribution partnerships and seems to be doing more of them lately. Earlier this year, the company announced it would nationally distribute Runa Clean Energy, an organic drink made with the guayusa leaf sourced in Ecuador. Keurig Dr Pepper also previously distributed Fiji Water.