What does Keurig's McDonalds deal mean for Kraft's coffee business?

Keurig Dr Pepper struck a deal with McDonald’s to license the McCafe coffee brand in the U.S. in an agreement that could prove to be the end of Kraft Heinz’s presence in the coffee business.

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Kraft has provided the ground coffee for the McCafe pods since McDonald’s debuted the brand in 2014. Keurig will replace Kraft in that process and both companies expect the transition to be completed by the second half of 2020.

While Guggenheim analyst Laurent Gradnet said the deal with McDonald’s is “too small to matter for Keurig,” he also stated that the agreement likely means the end of Kraft’s Maxwell House coffee brands to help cover mounting debt.

Gradnet put Maxwell House’s worth at around $1.7 to $2 billion should Kraft indeed sell the brand, with Keurig amongst the top potential buyers.

The packaged-food giant has been in a bit of a free-for-all lately, selling off assets in an effort to raise cash following a disappointing fourth-quarter earnings report in February. Kraft Heinz stock plummeted more than 25% after the report was released.

Despite recent management changes, the company will likely need to sell off some more of its brands and assets to repay it’s nearly $31 billion long-term debt, according to analysts.

An investigation from the Securities and Exchange Commission and going private in 2013 haven’t helped matters for the Kraft Heinz food empire, and Keurig’s newly announced U.S. licensing and distribution deal with McDonald’s could prove to be a nail in the coffin for Kraft’s coffee business.

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