Things go bitter with Coke distribution deal
Bodyarmor founder and chairman Mike Repole wants to challenge PepsiCo’s dominance in the sports drink market.
But first he will have to get past Keurig Dr Pepper.
The former business partners now find themselves in a court battle, spurred by Repole’s decision to transfer distribution rights for his company’s sports drinks to Coca-Cola in the wake of the Keurig-Dr Pepper merger. Executives at Burlington-based Keurig were not happy, judging from the breach-of-contract lawsuit that a Keurig subsidiary filed against Bodyarmor (aka BA Sports Nutrition) and Repole in Delaware Superior Court last week.
Both sides in this case don’t seem to agree about much, but they would probably agree on this: Bodyarmor can thank Dr Pepper for much of its rapid rise. Bodyarmor has experienced meteoric growth since its inception in 2011, buoyed by a distribution agreement with Dr Pepper for most of that time. (Bodyarmor wrapped up 2018 with about $425 million in retail sales.)
By one recent count, Bodyarmor controls as much as 10 percent of the US sports drink market, when measured by dollars spent. That’s not far from Coca-Cola’s Powerade, but still well below Pepsi’s Gatorade (which has about 70 percent of the market). Bodyarmor’s pitch: a healthier alternative, with coconut water and no artificial colors or flavors. It’s billed as a “premium brand.” Translation: a much higher price point.
The Bodyarmor-Dr Pepper relationship ran into trouble after Keurig’s parent company, European conglomerate JAB Holding Co., decided to acquire control of Dr Pepper and merge the business with Keurig. Within weeks after that merger closed in July, Bodyarmor defected to Coca-Cola. That distribution deal also made Coke a significant minority shareholder, with the option to increase its stake.
Keurig, in its lawsuit, depicts Bodyarmor as a faithless partner, ready to run when a more attractive option came along. Bodyarmor, meanwhile, says it was simply taking advantage of a change-of-control clause in its contract to find a better distributor. (Fiji, the bottled water brand, also left Dr Pepper’s stable at the time.)
So what happened last summer? It depends on whose story you believe.
Keurig claims Bodyarmor wrongfully ended its distribution deal so its owners could make “hundreds of millions, if not billions” by selling a stake to Coca-Cola.
Repole, Keurig says, initially seemed enthusiastic about the Keurig-Dr Pepper merger and the possibility that JAB might buy Bodyarmor, too. But Repole, Keurig says, wanted more money than JAB was willing to pay.
Then Repole changed his tune, according to Keurig, and sent a termination notice to Keurig on Aug. 13. The next day, Coca-Cola announced its deal with Bodyarmor. The news apparently didn’t go over well at the Keurig HQ. Keurig had once been a partner of Coca-Cola’s — remember the ill-fated Keurig Kold? — but they are now fierce competitors. Keurig seeks to recover hundreds of millions in losses caused by the supposed betrayal.
Bodyarmor, a 200-person operation based in Queens, N.Y., offered an unsurprisingly different perspective in its response to the lawsuit. Much of the old Dr Pepper leadership team is gone, replaced by a new team assembled by Keurig CEO Bob Gamgort. Bodyarmor says it was left with a clear impression by Gamgort that the company’s distribution partners — known as its “Allied Brands” portfolio — would not be a priority in the new regime. It was time to go. The change-of-control clause, Bodyarmor says, gave it a proper exit option. (Keurig disagrees, of course.)
Besides, Bodyarmor says Keurig can enjoy a taste of its future success: Keurig still has a 10-percent stake in Bodyarmor that carried over from the Dr Pepper days.
That leftover stake could be a nice consolation prize, should Bodyarmor continue on its upward trajectory. But it doesn’t seem to be slaking Keurig’s thirst for the real thing.