Dr Pepper Snapple merges with Keurig: Here's the e-commerce, IoT, digital transformation plan

Keurig Dr Pepper aims to expand its e-commerce footprint, leverage point of consumption data, and focus on consumer "need states" instead of drinks.

Video: Keurig Dr Pepper eyes digital transformation

Dr Pepper Snapple will merge with Keurig Green Mountain -- in a deal that will create a beverage giant with roughly $11 billion in combined revenue -- but the real growth promise may revolve around e-commerce, data at the point of consumption, and connected brewing devices.

On the surface, the combination of Dr Pepper Snapple and Keurig Green Mountain revolves around scale. Dr Pepper has Snapple, 7UP, A&W root beer, and Bai on the cold beverage side. Keurig has a stable of coffee brands and has opened up its single serve brewing platform to more partners.

These large deals -- Dr Pepper Snapple shareholders get $103.75 a share in a special cash dividend and 13 percent of the combined company -- usually revolve around distribution, supply chain efficiency, and cost cutting. And there will be plenty of those synergies to the tune of $600 million, according to the companies.

But the more interesting development for what'll become Keurig Dr Pepper will be its spin on digital transformation and marketing to the consumer.

Read also: Digital Transformation: A CXO's Guide

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In a slide, here's how Keurig Dr. Pepper, which will be led by Keurig CEO Bob Gamgort, views its shift as a combined brand. So long drinks, and hello "need states."

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On a conference call, Gamgort elaborated:

We all know the world has changed dramatically and consumers have more choice than ever on what to buy and where to buy it. The traditional manufacturer-defined segmentation of the market is not cutting it anymore. We need to view the market through consumer lens if we are going to be able to see opportunities for innovation and growth. Let me illustrate. There are 5 need states that drive consumer choice for beverages: Wholesomeness, hydration, refreshment, energy and indulgence. In the example we used here, we take the near universal need for energy in the afternoon. But when you think about the consumers' considerations set to satisfy that need, it crosses over many product formats and it is no way limited or best described by traditional segment definitions. We need to be able to work as one team across multiple beverage segments and channels of retail.

And to reach those segments -- notably every point of sale and consumption -- Keurig Dr Pepper will develop its data and e-commerce strategy.

Gamgort noted that Keurig has a US household penetration of 20 percent, which is up from 17 percent two years ago despite limited marketing. Keurig is also planning to roll out more device integration. That base provides a lot of options for other models. He said:

We have positioned ourselves well for future growth by building a substantial e-commerce business, not only through keurig.com but also through Amazon Jet and a wide variety of retailer dot-com sites. We've launched 15,000 Wi-Fi connected brewers that are providing the first-ever point of consumption data in CPG (consumer product goods) for the exclusive use of our partners. And this experience is paving the way for our future in which a significant number of Keurig brewers will offer IoT connectivity to consumers.
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The data, distribution, and connected device potential of Keurig Dr Pepper will be interesting. The deal will be a digital transformation story to watch. The issue for the company, however, will be the same as it is for many manufacturers in the retail pipeline: Debt. Keurig Green Mountain went private before merging with Dr Pepper Snapple. The combined company will have about $16.6 billion in net debt when the merger closes.

That debt may limit Keurig Dr Pepper's ability to invest and have the endurance to realize its data, e-commerce, and Internet of things plans.

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