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When James Quincey became CEO of Coca-Cola in 2017, soda had broadly been in decline over its health effects. The beverage giant was embarking on an effort to diversify its reach beyond the sugary drink.
A key move? Ditching the carbonation and sticking to the basics: cow milk.
Launched in 2012, Fairlife — originally founded as a joint venture between Coca-Cola and wholesale dairy producer Select Milk Producers — used whimsical, minimalistic packaging that fits with the influx of niche almond, protein and even pistachio milks, outperforming large-container beverages in the dairy aisle.
In 2020, Coca-Cola fully acquired Fairlife for an initial $980 million — an acquisition that has far exceeded the soda giant’s expectations due in part to social media popularity in the health and wellness space. While Americans face higher food prices and a pullback in their spending, they’re still drawn to Fairlife’s ultra-filtered system that draws out lactose and sugar but doubles the protein.
In 2022, Coca-Cola announced that Fairlife’s sales surpassed $1 billion.
The success is driven by Fairlife’s Core Power protein shake brand, which remains a popular staple at many grocery stores and does not have many direct market-leading competitors.
But in its latest earnings call last week, Coca-Cola projected some moderation of Fairlife’s growth in 2025 while it builds a facility in New York and carbonated beverages still make up the overwhelming majority of sales for Coca-Cola (its competitor, Pepsi, on the other hand, leans on its Frito-Lay snack brand). And when compared to Coca-Cola’s other big acquisition in the non-soda space — Costa Coffee in 2018 — Fairlife has far outpaced it.
“The expectations were never for Fairlife to be this successful, I think even for Coke,” said Kaumil Gajrawala, an analyst for finance firm Jeffries.
The acquisition was structured so there would be an earn-out — meaning the amount paid will ultimately be based on the milk brand’s success. In deals like this, the buyer could pay less than buying outright if they’re not sure a product will be successful, Gajrawala said.
The total payment for the acquisition is now looking to be $6.2 billion, plus the $980 million Coke initially paid, according to Coca-Cola’s latest earnings report. That would make it among Coke’s priciest acquisitions to date.
“Dairy has been tricky for Coke to get into,” Gajrawala said. “Nothing will ever be as important as a Coke trademark, but this is a nice contributor to growth.”
Cashing in on wellness
The North American market has shown it will invest in health, whether it’s Vital Farms’ free-range eggs or Fairlife’s protein-dense milk. Coca-Cola entered the right category at the right time, Citi analyst Filippo Falorni told CNN.