Keurig Dr Pepper (KDP) is seeking to emphasise the “value” of its US coffee products as it looks to stem declining US coffee sales.
In the three months to 31 March, KDP saw its US coffee division post a net sales fall of 2.1% to $0.9bn.
The result followed a 9.9% decline in the fourth quarter of 2023. When KDP reported its fourth-quarter and full-year 2023 results in February, the company said it would target affordability to increase household penetration in the US.
Speaking to investors following the publication of the company’s first-quarter results yesterday (25 April), CEO Tim Cofer was questioned about the group's marketing strategy to try to drive sales.
Cofer said KDP has increased its marketing investment and he sees an “opportunity to reinforce value on our pod business, as well as drive on the premium side.”
The KDP chief said consumers at "higher income levels" have what he described as "a really robust participation" in the company's Keurig ecosystem and are "actually growing sales".
He added: “Where we see a little bit more pressure of late is on the lower- and mid-income [consumers]. And, to that end, you will see new marketing or incoming starting in the second quarter. That is more sharply focused on a value message, particularly against a broader frame of away-from-home coffee.
“While at-home coffee represents three-quarters of the volume, away-from-home coffee is the larger dollar ring. We think in today's economic environment – and given the quality and variety that we're providing – a sharper value-based message will be one that's well received. You will see that activated as of Q2 this year.”
On the new product front, KDP is looking towards ice and cold beverages to boost sales in the away-from-home coffee segment. It will launch its ‘Brew + Chill’ brewer later this year, a system that produces and chills hot coffee similar to what is available in on-premise.
Overall, KDP posted first-quarter net sales of $3.47bn, up 3.4% year on year. It had a net income of $454m, down from $467m.
Sales from its US Refreshment division, which includes soft-drinks brands like Dr Pepper and Snapple, rose 9.1% to $8.8bn. Volume/mix dipped 0.5%.
The company's sales from its International division increased 15% to $1.9bn. Volume/mix was rose 5%.
Barclays' analyst Lauren R. Lieberman wrote: “The coffee margin recovery story was already underway in 2H23, although there was less to show for the topline. And so yesterday’s results felt to us like the first meaningful step forward for the US Coffee sales outlook.
“KDP did flag green coffee costs as a source of incremental pressure later in 2024, but we don’t anticipate this to be significant enough to derail the margin recovery story unfolding here.”
