Keurig (KDP) Partners With McDonald's To Market McCafe Coffee

Kuerig Dr Pepper Inc. (NYSE:KDP) continues to make strides to bolster its leadership in specialty coffee and tea. Keeping in these lines, the company has signed a long-term master licensing and distribution agreement with McDonald’s USA LLC, a subsidiary of McDonald’s Corp. (NYSE:MCD) , for McCafe Packaged coffee. This marks the beginning of an episode for the McDonald’s McCafe packaged coffee business, which collaborated with Kraft Heinz (NASDAQ:KHC) in 2014, to bring the brand to U.S. homes and retail outlets.

Per the agreement, Keurig will be the exclusive manufacturer of McCafe K-Cup pods in the United States, effective from the second half of 2020. Keurig will also be in charge of coffee sourcing, distribution and marketing of the brand in K-Cup pods as well as bagged and canned coffee packaging. Additionally, the company will take on the responsibility to trade the brand in all channels, including retail and e-commerce.

From the second half of 2020, the McCafe brand will be marketed by Keurig’s single-serve brewing system, apart from the coffee aisle. With this new venture, the company expects to make McCafe a leading go-to-coffee brand for its customers along with strengthening its presence in the retail channel. Further, the company expects to bring innovation through its sourcing, roasting, distribution and marketing expertise to drive the brand’s growth and expansion.

Currently, McDonald's, Kraft Heinz and Keurig are likely to together make an effort to ensure smooth transition of the McCafe brand by the second half of next year.

Keurig is focused on partnerships and acquisitions to augment growth. Post its merger with Dr Pepper Snapple Group, the company acquired Big Red and CORE Hydration. It also partnered with Forto Coffee Energy Shots and expanded distribution terms with Peet's for ready-to-drink Iced Expresso. It will distribute Forto throughout its network and Peet's primarily through its network of convenience stores.

Additionally, the company has signed a long-term agreement to sell, distribute and merchandise the Evian brand across the United States. It also added the iconic Canadian coffee brand, Tim Horton’s, and U.S.-based bakery-cafe brand, Panera, as partners. Furthermore, it has partnered with Met café in Canada, which was previously an unlicensed brand, and will begin distributing in 2020. Meanwhile, Keurig Dr Pepper exited FIJI Water and BODYARMOR drink brands as part of the recent reorganization of its allied brands.

Price Performance & Another Stock to Consider

Keurig’s stock has gained 17.5% in the past year, outpacing the industry’s growth of 2.6%. Moreover, the stock has comfortably outperformed the broader Consumer Staples sector and the S&P 500 index’s growth of 5.3% and 1.4%, respectively. The company currently carries a Zacks Rank #2 (Buy).

Another stock that currently holds potential in the soft drinks space is Fomento Economico Mexicano S.A.B. de C.V. (NYSE:FMX) , with an impressive long-term earnings growth rate of 15.8%. It also carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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