Coca-Cola's future isn't about soda anymore

Gold Peak

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% in the second quarter, part of a larger downward trend in soda consumption. In 2015, the total volume of soda consumed in the US dropped 1.2%, compared to a drop of 0.9% in 2014, according to Beverage Digest.

As a result, Coca-Cola and Pepsi are looking to other beverages to grow sales.

Gold Peak

PepsiCo CEO Indra Nooyi said in April that less than 25% 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% of our volume coming from still beverages to almost 30% 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."

Gold Peak

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% 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 US, 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% 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.

NOW WATCH: Starbucks is hoping this new fall drink will be their next Pumpkin Spice Latte