Coca-Cola is investing in coffee.
On Thursday, Coca-Cola’s iced tea brand Gold Peak announced it is entering the ready-to-drink coffee business. The brand, which is currently best known for its $1 billion bottled iced tea business, will launch bottled coffees and tea lattes in the first quarter of 2017.
It’s a move that reveals Coca-Cola’s plans to enter the $2 billion ready-to-drink coffee industry—a move that might be key to the company’s future.
In July, Coca-Cola reported that its sparkling-beverage sales by volume dropped 1 percent in the second quarter, part of a larger downward trend in soda consumption. In 2015, the total volume of soda consumed in the U.S. dropped 1.2 percent, compared to a drop of 0.9 percent in 2014, according to Beverage Digest.
As a result, Coca-Cola and Pepsi are looking to other beverages to grow sales.
PepsiCo CEO Indra Nooyi said in April that less than 25 percent of the company’s global sales are from soda. Rather, the company is focusing on healthy snacks and noncarbonated beverages—a process the company calls “future-proofing.”
Similarly, Coca-Cola’s “still” beverages such as tea, juice, and bottled water are growing sales by volume as soda shrinks.
“Since 2000, we’ve increased our business from about 10 percent of our volume coming from still beverages to almost 30 percent today,’ COO James Quincey said in a Q&A in July.
Bottled coffee and tea are a key part of that growth. In fact, RBC analyst Nik Modi has theorized that soda’s decline is directly linked to the growth of coffee—specifically, Starbucks’ coffee.
“Twenty years ago, people used to wake up with a Diet Coke or a Diet Pepsi,” Modi said in June at Beverage Digest’s Future Smarts conference. “At around 2 o’clock, they’d have another and take a break. Walk in front of a Starbucks at 8 a.m. and 2 p.m. and tell me how long the lines are.”
If Starbucks’ is trying to steal Coca-Cola’s business, now, the soda giant is ready to fight back.
The company has already made major investments in ready-to-drink tea, with billion dollar tea brands including Gold Peak and Fuze Tea. The ready-to-drink tea business has grown 91 percent in the past 15 years, making it a crucial category for Coca-Cola’s investments.
Now, it seems coffee is the next target.
Ready-to-drink coffee is an estimated $2 billion business in North America, and expected to grow to a $2.3 billion market by 2020, according to Research and Markets.
Coca-Cola already sells bottled Illy brand coffee in the U.S., partnering with the company in 2007. It also sells Gold Peak coffee, but not as a bottled, ready-to-drink beverage.
In more general coffee investments, Coca-Cola spent $2.4 billion on a 16 percent stake in Keurig in 2014 and partnered with Keurig in creating Keurig Kold flavors, such as Diet Coke and Sprite. When JAB Group acquired Keurig, Coca-Cola sold its equity stake in the venture.
*Correction, Sept. 6, 2016: Due to a production error, an earlier version of this post misidentified author Kate Taylor in the byline.