Coca-Cola Starts Selling Coffee Beans! What’s the Signal?

Editor’s Note (coffeeyo.com): Coca-Cola has officially begun selling coffee beans (Brazilian Arabica, launched in partnership with Tristao), a clear signal that it is extending its product boundaries into the coffee space amid an 11-year streak of declining carbonated-drink sales.

Sugar-sweetened carbonated soft drinks have now posted declining sales in the U.S. market for the eleventh consecutive year, and Coca-Cola has smelled the danger. This time, alongside canned coffee, it is starting to sell bagged coffee beans to consumers — inevitably putting it in competition with Starbucks for business.

As the world’s largest soft-drink producer, Coca-Cola has a new move — it is planning to sell Arabica coffee beans to Brazilian consumers. That’s right: not a new bottled ready-to-drink coffee flavor, but a packaged coffee-bean product, to be sold through a local Brazilian tea brand it owns. Coca-Cola signed a cooperation agreement with coffee exporter Tristao Companhia de Comercio Exterior, which will be responsible for purchasing and roasting the beans. It is understood that this plan is tied to the breakfast-beverage business Coca-Cola is advancing. Rather than doubling down on its core products, it is moving upstream into another product category — what exactly is Coca-Cola playing at?

This may be related to the hard landing that carbonated drinks are going through. Previous reports noted that, as of last year, sugar-sweetened carbonated soft drinks had seen declining sales in the U.S. market for the eleventh straight year. A company that once derived 75% of its beverage volume from carbonates has clearly sensed the danger. On the other side of the ledger is the growth of the non-carbonated beverage market. In China, coffee is a rapidly growing consumer market. Research shows the country’s coffee consumption market grows by around 15% a year, and coffee consumption could surpass RMB 150 billion within five years. In 2013, China became Coca-Cola’s third-largest market, and years of deep operations have made the brand’s influence deeply rooted, making it easier to cultivate demand for new products. Coca-Cola’s sale of coffee beans in Brazil looks like a vanguard move toward entering the coffee market on a large scale.

Lately, amid its diversification push, Coca-Cola’s acquisition activity has been frequent and telling: it is trying to break free from the established perception of a carbonated-drink maker. In March this year, Coca-Cola completed the full acquisition of Chinese local brand “Zhonglü Cuguangwang” (Green Grain King), a maker of mixed-cereal beverages; two-plus months later, it bought AdeS from Unilever, a brand focused on soy-based drinks and juices; most recently, Coca-Cola invested in startup LA Aloe, whose main product is organic aloe vera juice, a plant-based beverage. Long tagged as an “unhealthy drink” maker, Coca-Cola is pinning high hopes on the market space for “healthy, low-sugar” beverages. A subtler move: in the UK, Coca-Cola renamed “Coca-Cola Zero” to “Coca-Cola Zero Sugar” — emphasizing “sugar-free” more prominently, which seems to be the prevailing trend across the beverage industry.

In fact, Coca-Cola’s coveting of the coffee market is long-standing. As early as 2001, Coca-Cola and Nestlé formed BPW (Beverage Partners Worldwide), a 50-50 joint venture to produce and sell Nestlé’s ready-to-drink teas and coffee beverages worldwide. In February 2014, Coca-Cola bought a 10% stake in Green Mountain Coffee Roasters; that September, it launched in China “Georgia” (GEORGIA), one of its brands with over US$1 billion in annual sales — a coffee-drink brand — underscoring its fondness for China’s ready-to-drink coffee market. Yet even with formidable strength in brand, marketing and channels, in coffee Coca-Cola still faces two rivals it cannot ignore: in channels, its former partner Nestlé; and offline, coffeehouse-chain giant Starbucks. Will it go head-to-head, or does it have a unique playbook of its own? That remains unclear. Although this cola giant turning into a “coffee giant” still looks a ways off, as more and more big players resolve to get into the coffee business, anything is possible.

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