The news: Keurig Dr Pepper’s Q3 performance revealed contrasting trends in US spending, with buoyant demand for the company’s beverages overshadowed by slowing demand for its coffee products.

The numbers: Keurig’s US refreshment business was the standout in the quarter, driven by strong interest in the company’s sodas and solid growth in energy drinks.

• US refreshment beverage sales jumped 10.9% YoY in Q3, with rises in both volume/mix (up 7.2%) and price (up 3.7%).
• Both Dr Pepper and Keurig’s energy portfolio gained share in the quarter; Dr Pepper Zero was the top performer, growing sales by 25% to become a $1 billion-plus franchise.

On the flip side, Keurig’s coffee business is facing more serious headwinds. US net sales grew just 2.7% YoY as the company resorted to higher promotions to attract cost-sensitive shoppers and keep private labels from gaining share. Consumers, especially low- and middle-income households, are displaying “heightened value sensitivity in at-home coffee” after years of inflation-driven price increases in the category, CEO Tim Cofer said. That in turn is driving shoppers to embrace more cost-effective modes of coffee consumption—such as whole bean, instant, and ground coffee—over single-serve K-cups. At the same time, private-label penetration is rising as consumers seek cheaper alternatives.

Implications for retail: Keurig’s two-speed business is a reflection of how consumer spending patterns vary across CPG categories. The company’s differentiated refreshment business, which includes major franchises such as Dr Pepper and Canada Dry alongside emerging brands such as Ghost energy drinks, is enabling it to stay relevant with a wide swath of consumers. Meanwhile, Keurig’s coffee business is vulnerable to encroachment from private labels as cost-conscious shoppers look to cut their grocery bills.

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