Keurig Dr Pepper leaders talk CEO transition, 'vibrant' coffee market

Keurig Dr Pepper (KDP) chief executive Bob Gamgort is set to exit his role from the food giant in the second quarter of 2024, passing the torch off to Tim Cofer.

Outgoing Keurig Dr Pepper CEO Bob Gamgort and Incoming Keurig Dr Pepper CEO Tim Cofer join Yahoo Finance Executive Editor Brian Sozzi in-studio open up about the company's transition plan and their expectations for growth across categories, including coffee and caffeinated beverages.

"Our track record has been one where we've outperformed our peers and we've delivered shareholder performance. It's way above... what our peer set was... but that's about the past," Gamgort speaks on the leadership transition decision. "The future is really bright and at some point you need to have a transition. So it's a nice foundation, but that foundation needs to be built upon and activated. And so we needed to find somebody who understood consumers, who had run companies at scale, who had experience across dozens of categories, and had the right cultural fit."

Keurig Dr Pepper's product portfolio runs broad across the beverage space after several acquisitions over the years, from soft drinks like Snapple and Dr. Pepper to its Keurig K-Cup coffee pods and even chocolate milk staple Yoo-Hoo. Cofer values the beverage market at $300 billion: "It's always changing consumer preferences. So there's always opportunities for growth and disruption."

Cofer previews the new innovations to come in KDP's titular coffee brand, criticized in the past over its K-Pod's sustainability concerns: "So this new system will do it plastic-free and aluminum-free, our new Keurig Alta and K rounds. The other big news real quickly on the coffee side is we're launching a K-Brew+Chill that's gonna allow a consumer to satisfy that cold brew experience..."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

[AUDIO LOGO]

BRIAN SOZZI: It is the end of an era. Keurig Dr. Pepper, CEO Robert Gamgort will be stepping aside in the second quarter and ushering in a new era with current CEO Tim Cofer. I have them both with me right now in the Yahoo Finance New York City studio.

Good to see you both of you, guys. I appreciate you making the time. I know it's busy days for you both.

BOB GAMGORT: Good to be here.

BRIAN SOZZI: Bob, let me start with you. I'm generally fascinated by corporate hang just handovers, the passing of the baton. How did you select Tim?

BOB GAMGORT: Well, we founded the company about five years ago around the insight of a pure-play beverage company that could deliver a beverage any time, any place. And the success has been tremendous. Our track record has been one where we've outperformed our peers.

And we've delivered shareholder performance that's way above what our peer set was. But that's about the past. The future is really bright.

And at some point, you need to have a transition. So it's a nice foundation. But that foundation needs to be built upon and activated.

And so we needed to find somebody who understood consumers, who had run companies at scale, who had experience across dozens of categories, and had the right cultural fit. And we couldn't be happier than to have Tim, our CEO.

BRIAN SOZZI: For the past few months, how does this work? I mean, do you pick his brain? Give me all the secrets to this company So I can execute out of the block. I mean, you're an experienced executive. This isn't your first rodeo.

TIM COFER: Yeah, I mean, no doubt. I mean, first of all, it's obviously a privilege to join this great company. It's young, it's dynamic, best days still ahead. So I'm looking forward to partnering with Bob and learning from Bob and our board and all of our colleagues.

But for me, as you said, it's only been a couple of quarters that I've been at KDP. But I do bring over three decades of experience in broader CPG mostly in food and beverage. And I can tell you two things.

One is I think beverage is a great space as we were talking about earlier. I mean, this is a huge market, $300 billion. High growth and really dynamic. It's always changing consumer preferences. So there's always opportunities for growth and disruption.

And the other is Bob and the team have done a great job. We have built an advantaged platform here at KDP. The capabilities, the route to market, the brand portfolio, got a lot going for us. And I'm excited about leading the next chapter of growth.

BRIAN SOZZI: What's the biggest opportunity that you want to unlock in the second half of the year? You take over and what in the second quarter. Second half of this year in early 2025. What are your biggest initiatives?

TIM COFER: Yeah, well, first of all, we've got both a leading refreshment beverage business, as well as on coffee business. And we've got a great innovation slate on both sides.

On coffee, we've actually recently announced some pretty exciting news. And I'm pumped about that. You think about Keurig.

Keurig was really the innovator, the pioneer of single-serve coffee 30 years ago. And since then, Bob and our Keurig team has really listened to consumers to understand how do we continue to innovate and disrupt. That leads us to some exciting innovation that we just released last week in terms of news.

One of them is an all-new system that allows a consumer to make a great cup of coffee, coffee shop experience, whether they want an espresso, cappuccino, or a cold coffee.

BRIAN SOZZI: I want all of them, Tim.

TIM COFER: Yeah, that's what I've heard. You're a big coffee drinker. And that system is going to do it.

And what's really cool about it, it also delivers on a sustainability benefit that's really important. So this new system will do it plastic-free and aluminum-free, our new Keurig Alta and K rounds. The other big news real quickly on the coffee side is we're launching a K Bruin chill. That's going to allow a consumer to satisfy that cold brew experience that I know is big for you in iced coffee.

BRIAN SOZZI: Is that one of the things, Bob, holding back this coffee business? It's been under pressure the past year and a half. Millennial people drinking coffee, iced coffee out of a straw. They don't want to stay in their teeth. Drip coffee is dead. I mean, what's the issue here?

BOB GAMGORT: Well, coffee is still very vibrant. If you look at the recent consumption of coffee, it's hit a 50-year high in terms of the number of people who drink coffee. But like many categories, It's soared during the pandemic. And then we've had a bit of a recovery issue since then.

And it's interesting because it's a global coffee category issue in pretty much every developed markets. But we don't sit still. We still deliver all of our financial performance and commitments despite those challenges.

And as you're hearing from Tim on the innovation side, we will continue to make coffee interesting and make those coffee shop experiences like cold or specialty available to everyone in their home.

BRIAN SOZZI: Is the coffee business back to growth this year?

BOB GAMGORT: The coffee business in total on an occasions basis in aggregate is starting to recover post-pandemic. And we continue to see sequential improvement every single period. And it can only help when we put innovation like the ones that we're talking about there in the marketplace to continue to get people excited about coffee at home.

BRIAN SOZZI: Tim, when did these new brewers start hitting, and how many do you expect to ship this year?

TIM COFER: Yeah, so that K brew and chill, that's going to give that chilled experience at home those launch this fall. And then we have a number of other ideas coming out early next year like the smallest-ever footprint brewer. That's going to fit in any space in any budget that comes out early next year.

And then that new Alta system, and that plastic-free and aluminum-free, we're going to start beta testing that with consumers later this year to really perfect it get the continued consumer feedback and then launch it as soon as we're ready and ensure we can do it with excellence.

BOB GAMGORT: Yeah, I was going to add. One thing to Brian which is also when you talk about cold coffee, we've expanded our position in ready-to-drink coffee which is a growing segment. So we've had that partnership that we announced with an investment in La Colon, which has now turned into an investment in Chobani. And bringing that to market that draft latte they produce is another way to attract younger consumers.

BRIAN SOZZI: Bob, maybe this one's for you. Why does your stock trade at discount to some of your other beverage peers? I hear what you're doing. You have a giant position in coffee.

You have the energy drink opportunity. You're growing internationally. What ultimately unlocks the valuation on your company?

BOB GAMGORT: Yeah, a couple of things. So, one is right now, if you look at coffee around the globe, people are a bit concerned because of the post-consumer, the post-COVID rebound with consumers. I'm not the least bit worried about that given all of the bullish metrics on coffee. Interestingly, we've had a journey from being a private company to a closely held company to a widely held company.

We've talked about this at our investor day. 900 million shares over the past five years have been put in the market. In terms of monetization of a company in public markets, that's second only in history to the US government's monetization of AIG.

BRIAN SOZZI: That's a big number.

BOB GAMGORT: That's a big number. And one of our investors had to do a block trade recently that was the largest block trade ever done. So there's no question on supply and demand. There's been a lot of supply in stock.

The good news is that that investor who the company who took Keurig private is said we're holding on our current position, which is about a 20% ownership position. And to tell you how attractive we think the current valuation is, the company has purchased over $1 billion worth of shares.

BRIAN SOZZI: So you'll stay aggressive buying back?

BOB GAMGORT: Absolutely. When we see this kind of value, we're opportunistic, not formulaic. And also more importantly, I think for most people is the two of us plus our CFO have bought a substantial number of shares just recently because we just see it as an attractive entry price. And it's not because of the fundamentals of a company that we've outperformed our peers, there's just been a lot of supply of stock into the market because we've gone from private to public.

BRIAN SOZZI: Tim, the last one to you. There's been so much consolidation in this space over the past five years during partnerships, entire companies covered. We were talking off-camera about Campbell's Soup buying Sovos Brands. I know you know CEO Mark Clouse. Well, part of your job do you think, will be to make that next key acquisition for the company? And what sectors interest you?

TIM COFER: Yeah, I mean, the last few years again Bob and the team have done a great job as you think about a buy-build and partner strategy. What's so cool about beverages is, again, it's a very dynamic space. They'll always be new opportunities.

It might be an energy, it might be in sports hydration, ready to drink coffee. I think we've got a really good track record and really positioned ourselves to be a preferred partner in the industry. Sometimes it makes sense for us to do a straight-up acquisition.

We've done that in the past. We can do it again. Other times, it makes better sense to partner, get that exposure.

But keep that entrepreneur with the skin in the game, real alignment to drive the business. And then that still gives us it allows us to do it in a more, let's say, capital-responsible way. Still give us optionality down the road.

Examples of that would be C4 Energy. Recently done that. Got a 34% stake in that high-growth business.

I've got a great partnership with Electrolyte Sports Hydration number one in Mexico. We'll be the ones to bring the distribution here to the US. So those are great examples, I think, of a partnership strategy that can continue to round out a high-growth portfolio. Bob, how are you going to handle this retirement stuff? Strike me as a retirement type of guy.

BOB GAMGORT: So, I think, first of all, I'm going to remain as chair of KDP. So we get to partner together for the long haul. And there's a lot of interesting stuff out there.

BRIAN SOZZI: All right, well, thank you for giving all these a lot of time to Yahoo Finance. We appreciate it. Bob Gamgort, Tim Cofer, good to see you. And good luck on the new position. Appreciate it.