"Never kick a man when he's down," goes the ancient admonition. But as Coca-Cola (NYSE: KO ) might argue, "when he's down" is often the safest time to kick him.
Over in Seattle, Starbucks (Nasdaq: SBUX ) is busy fending off a smiling challenge from McDonald's (NYSE: MCD ) McCafe. With the coffee-meister preoccupied defending its core business, Coke has decided that now's a great time to sneak in a quick kick on Starbucks' blind side.
Coffee with an Italian kick
As you may recall, last year Coke teamed up with Italy's illycaffe to create a joint venture to hawk canned, ready-to-drink (RTD) coffee concoctions -- "Caffe," "Cappuccino," and "Latte Macchiato" under the "illy issimo" brand name.
Back then, I argued against the new joint venture's name: "Ilko Coffee." (Sound it out. That's right: "Ill-co".) But it's hard to argue with the timing -- or the success. When it announced the partnership last year, Coke boasted of a $16 billion market opportunity, which was growing in excess of 10% per year. Fast forward 14 months, and Coke's CEO Muhtar Kent now puts the market at $17.4 billion in size. For those in the class who forgot to bring their calculators, I'll give you the answer: The market actually grew at 7.5%, annualized.
Um ...
Sure, sure. So the market's not ramping up quite as well as expected. But in case you haven't noticed, we're in a bit of an economic slump right now. When you consider that both Starbucks and McDonald's, and also Procter & Gamble (NYSE: PG ) and Kraft (NYSE: KFT ) (read: "Folgers" and "Maxwell House," respectively), saw their sales slide in the most recent quarter, well, 7.5% growth doesn't look half bad.
Coke had a bad quarter, too, revenue-wise, as did PepsiCo (NYSE: PEP ) , which currently dominates the $2 billion U.S. RTD coffee market by selling bottled DoubleShot, Frappuccino, and canned iced coffee in cooperation with ... Starbucks.
So it's little wonder that Coke wants to break into this growing market stateside, where approximately 11% of worldwide RTD coffee sales take place. Coke recently launched distribution of illy issimo in three U.S. cities -- New York, San Francisco, and Los Angeles -- distributing the drinks through upscale locations such as Whole Foods (Nasdaq: WFMI ) -- and perforce, targeting the same well-heeled clientele who eschew McDonald's and hew to Starbucks.
Kick and run
And once it's kicked Starbucks (and -- for bonus points -- Pepsi) here in the U.S., Coke aims to tackle the biggest RTD market of them all: Japan. That's where 75% of the market lies and where we'll ultimately see Coke's coffee klatsch succeed or fail.
Have another sip of our Coke commentary and a smile:
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