Coca-Cola (NYSE: KO ) has upped its stake in Keurig Green Mountain (NASDAQ: GMCR ) to 16% and the two companies have a deal to jointly launch Keurig Cold, an in-home soda maker that will feature Coke's products. In the latest episode of Business Take, the show that gives you the Foolish perspective on the most important business stories of the week, host Jason Hellmann and Fool contributor Daniel Kline discuss whether the soda giant might eventually just buy Keurig entirely. The move would give Coke access to not only the small in-home cold beverage making market, but the much larger single-cup coffee audience.
The current Coca-Cola/Keurig deal covers the launch of a machine that would allow people to make carbonated cold beverages at home. The current leader in that space, SodaStream (NASDAQ: SODA ) , owns that market, but that's still only a fraction of the approximately $5 billion U.S. market for single-cup coffee, which is dominated by Keurig's K-Cup machines. Hellmann, a devotee of the SodaStream machine, explained how it works to a skeptical Kline.
"It's kind of the Gillette model where you buy the machine for a reasonable price then you have to buy CO2 canisters to refill it," Hellmann said. "My wife and I are big seltzer drinkers, so we just drink the carbonated water, but a big portion of SodaStream's business is selling flavor packs with it.... If you're like me and you live in the city you don't have to carry soda home."
"Take me through the economics," Kline said, explaining that he lived in the suburbs in a ranch house so carrying a six-pack of soda was not that big a deal.
"The machine costs about $100, so it will take a while to recoup that cost.... The canisters are between $20 and $25 to refill and you get around 150 liters or so from that," Hellmann said. "It's more about convenience for us."
Currently SodaStream does less than $1 billion a year in the United States and Kline and Hellmann discussed whether Coca-Cola entering the market would make it bigger or whether it was just a novelty like making ice cream at home.
"I don't see a huge business," Kline said. "What I do see is Coke outright buying Keurig Green Mountain."
Do you think Coke should buy its partner? Would this be good for both? Watch the video for the full story then share your thoughts in the comment section below.
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