The news: Keurig Dr Pepper (KDP) will acquire JDE Peet’s for €15.7 billion ($18.4 billion) to revive its struggling coffee arm before splitting into two public companies. The deal will create a coffee powerhouse by merging KDP with JDE Peet’s global brands that include Peet’s, L’OR, Jacobs, and Douwe Egberts.

The strategy: The deal is meant to jump-start KDP’s sluggish coffee arm.

• The division posted flat US sales in Q2 and is squeezed by higher green coffee costs from tariffs and weak crops.
• Peet’s, by contrast, beat first-half revenue estimates and raised its full-year outlook.

Together, the companies expect $400 million in synergies over three years. The new Global Coffee Co., with $16 billion in annual sales, will become the world’s largest pure-play coffee company—second only to Nestlé, which owns Nespresso and Nescafe.

Spinning off the coffee unit from KDP’s other beverage businesses like Snapple and Canada Dry is also meant to sharpen focus, giving each segment more room to compete in its own market.

The context: KDP is far from alone in turning to consolidation as a fix in a tough macro backdrop shaped by new duties and tighter US consumer wallets. While overall deal volumes slipped in the first half, several notable moves stand out:

• Nutella and Ferrero Rocher parent Ferrero is spending $3.1 billion to buy cereal maker WK Kellogg to give it a foothold in staple grocery categories and deepen its North America presence.
• PepsiCo is expanding its portfolio of so-called “better for you” products. It shelled out $1.95 billion for prebiotic soda Poppi and $1.2 billion to buy Siete Foods, which makes Mexican-American items that appeal to consumers with vegan, grain-free, and dairy-free diets.

Consolidation makes particular sense in coffee given that climate change, geopolitical disruption, tariffs, and rising demand have caused prices to nearly double over the past five years. Creating what the companies claim will be the world’s largest pure-play coffee company could give the new entity significant pricing power to navigate those headwinds.

Our take: The deal signals KDP’s belief that in today’s tough coffee market, bigger is better. But scale can be a double-edged sword; if Peet’s brands lose their character, the world’s new coffee giant risks serving up plenty of volume but very little flavor.