Marketing Spend on the Rise, CEO Says. Also, ‘Happy” With Polar Seltzer Velocity.

Yesterday, Keurig Dr Pepper reported first quarter organic revenue growth of +11%, which follows +6.4% growth in the fourth quarter of last year. In the first quarter, packaged beverage sales grew +7.2%, while beverage concentrates grew +6.5% on pricing that increased +7.2%. Latin America Beverages rose +7.7%, while coffee systems growth jumped +17%. In a research report yesterday, Morgan Stanley Analyst Dara Mohsenian said first quarter results from KDP, Coke, and PepsiCo confirm a better-than-expected “revenue rebound in the beverage industry post COVID, which in our minds will offset rising commodities, unlike negative revisions expected at CPG peers in household products/food.” Yesterday, KDP closed up +2.1%, outperforming a +0.7% rise in the S&P 500 index.

COST INFLATION. During a conference call with analysts, KDP executives said rising cost inflation this year will come from aluminum, glass, corn-based products, transportation, polypropylene plastic used for coffee K-Cups, and green coffee. “For 2021 we are in a position of strength, as we are able to utilize our sales growth momentum to mitigate inflation,” CFO Ozan Dokmecioglu told analysts during the conference call. “However, if this inflation were to accelerate, we may need to use other options.” Earlier this month, both Coca-Cola and PepsiCo indicated they could take pricing to offset cost inflation.

MARKETING. During the same call, Chairman and CEO Bob Gamgort said marketing spend will be higher in 2021 than in 2020 despite pressure from cost inflation. “We haven’t touched marketing to offset inflation at all in 2021,” he said. Spending as much on marketing last year made less sense during the disruptive pandemic, and the company is looking to restore much if not all spending levels from before the Covid-19 crisis, Gamgort said. “It will take a couple of years to get there,” he said. More of the spending is being focused on digital, and the company is using data more effectively to target its efforts and increase productivity of the spend, he said.

POLAR PROGRESS. Last year, KDP signed a long-term national agreement to distribute Polar Seltzer in the US. On the call, CEO Gamgort told analysts that he is “happy with velocities” and “really pleased” with the 55 ACV already obtained. “Where does it go from here?” he asked. Polar is “going to deliver at the ACV level of all of our top brands, and that’s almost universal distribution. There’s no reason why – as this is one of our big investment areas – it’s not going to achieve that strength.” Gamgort said Polar fills an important gap for KDP in a high-growth category. He added that caffeinated sparkling water startup Limitness, acquired by KDP early in 2020, will be expanded “beyond just caffeinated.” He also said that Canada Dry and Schweppes are “much more fit for the ginger ale and the CSD business than they are for sparkling water, but it made some sense when we didn’t have anything.”