Coffee-Price Rally Set to Jolt Keurig Dr. Pepper-JDE Peet's Combined Java Operation, Analyst Says

01:54 PM EDT, 09/23/2025 (MT Newswires) -- Elevated coffee prices, driven by US tariffs and bad weather in key producing regions, provide growth opportunities for Keurig Dr. Pepper (KDP) and JDE Peet's, which recently announced plans to merge, an analyst told MT Newswires.

Coffee prices rose 20.9% in August from the year-ago period, the steepest jump since 1997, according to consumer price index data from the Bureau of Labor Statistics. Prices for arabica, the most popular type of coffee, swung wildly during the week of Sept. 15, including a rise of 1.5% on Sept. 18 before falling slightly, according to a Bloomberg report. The choppy trading drove a 60-day gauge of volatility to its highest level since October 2021, the report said.

Issues impacting Brazil, the top coffee supplier to the US and the top exporter of arabica, are seen as the main culprit driving prices higher. President Donald Trump levied a 50% tariff on the South American nation in July. Year-to-date, coffee shipments to the US from Brazil have halved and were down more than 75% year over year in August, according to data from shipping data firm Vizion. Brazil and other major exporting countries have also dealt with weather-related issues like frost that have hampered harvests and drove down production.

Set against that backdrop, Keurig Dr. Pepper (KDP) and JDE Peet's on Aug. 25 said they plan to merge and then split into two independent, publicly traded companies. One will target the North American refreshment beverage market while the other will be a coffee-focused firm initially called Global Coffee Co.

The deal, which will see KDP pay roughly $18.52 billion in cash to acquire JDE Peet's, has gotten the cold shoulder from Wall Street, with KDP shares down almost 17% over the past month as of Tuesday. Several analysts cited concerns over the amount of leverage KDP used to finance the acquisition.

KDP's net leverage will increase to 5.2x from 3.3x upon deal close and put pressure on its balance sheet, Bloomberg Intelligence Senior Credit Analyst Julie Hung said in a note. Following the deal announcement, S&P Global Ratings placed all of its KDP ratings on CreditWatch with negative implications.

Nevertheless, the transaction does provide reasons for optimism, particularly on the coffee side, with the combined firm having about $16 billion in annual sales, they said when the deal was announced. That compares to more than $28.7 billion in revenue for coffee-related products last year by Nestle, the world's No. 1, according to data from Bloomberg.

"It will create a stronger No. 2 in coffee behind Nestle by enhancing its US position," said Duncan Fox, a Bloomberg Intelligence senior analyst for consumer products, in a note discussing the deal.

JDE Peet's strategy consists of focusing on its big brands in its core markets, which account for two-thirds of its sales, while expansion into new areas remains a long-term possibility, Fox said. JDE Peet's brands include Douwe Egberts, Jacobs, and Maxwell House outside North America.

"This strategy should be enhanced once its merger with Keurig Dr. Pepper (KDP) is completed, given its enhanced position in the US -- the world's largest coffee market," Fox said.

Nestle and JDE Peet's, which will dominate its combined coffee operations with Keurig, both stand to benefit from an expected shift by US consumers to cheaper at-home brews driven mainly by Trump's tariffs, Fox said in a separate note.

"The high-growth $121 billion at-home coffee-drinking market offers the companies a shield, with scope to navigate rising input costs from their hefty US coffee-market shares of 23% for Nestle and 10% for JDE Peet's," he said.

Keurig Dr. Pepper (KDP), which didn't respond when reached for comment by MT Newswires, said in July it expects its US coffee business to "remain subdued" for the back half of the year amid consumer uncertainty over price increases. JDE Peet also didn't respond to a request for comment.

Breaking into the food service market represents an additional sizable opportunity for Global Coffee Co., Fox said in an interview with MT Newswires.

"Servicing offices is a huge potential market, a $150-billion-plus, I think, market," he said. "I think that it is a massive opportunity to get machines into offices and entice people to stay at work [and away from cafes]."

"If you can break into that market, there's huge potential there, and I anticipate when they get management teams and everything else all together, that's something they might attack to get their presence there in the market," Fox said.

Price: 26.52, Change: +0.57, Percent Change: +2.20

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