July 25, 2016

Already a soda, water, and energy drink giant, Coca-Cola has been exploring diversification strategies in the face of softening demand for soft drinks.

Now, Coca-Cola has announced that it is entering the coffee sector in Brazil – a move that will not only expand its non-carbonated portfolio and expand its presence in Latin America, but will also give the company a foothold in the growing breakfast category.

The company plans to sell high-end, packaged Arabica beans through its own domestic Brazilian tea brand, Leao, and has an agreement with Tristao Companhia de Comercio Exterior, a coffee exporter that will acquire and roast the beans. The financial details of the deal were not disclosed.

Although Brazil is the world’s top producer and exporter of Arabica beans, it is also the second largest coffee consuming market by volume according to the Brazilian Coffee Industry Association reports Just-Drinks, indicating a sizeable potential domestic market for high end export-grade coffee.

“We realized we had an opportunity in offering export-quality coffee to Brazilians,” Sandor Hagen, vice president of new businesses at Coca-Cola’s Brazilian unit told Bloomberg.

However, Investopedia notes that Brazil’s current recession and the five-year long decline of the real by 50% against the dollar could impede the initial growth the venture until the country’s economy sees a certain level of recovery.

Soft drink headwinds

Soda sales fell to a 30-year low in the U.S. last year as consumer trends continue to shift away from high-sugar drinks, and unlike its rival, PepsiCo, Coca-Cola does not have a packaged food business to leverage against falling soda sales points out Investopedia.

Last year, in partnership with the co-op Select Milk Producers, the company launched a new high-end branded milk line called Fairlife that has more calcium, more protein, and half the sugar of traditional milk products. More recently, in June of this year, the company acquired a minority stake in California-based Aloe Inc. a producer of certified organic aloe water beverages for an undisclosed amount, and acquired Unilever’s soy-based beverage business, AdeS for $575 million – an acquisition will accomplish two objectives for Coca-Cola, the expansion of its non-carbonated portfolio, and the expansion of its presence in Latin America.

—

Lynda Kiernan