Taking Things a Cup at a Time

This past Christmas the hot gift throughout my entire family was a Keurig coffee maker. Really, a coffee maker? Doesn’t everyone already have one of those? That is exactly what I thought as my parents, grandparents, aunts and uncles all tore open the red and green wrapping paper that covered the boxes. But this was something new, something different from your run of the mill, average coffee machine.

Keurig Incorporated is the world’s industry leader in single cup coffee brewing technology. Founded in 1992 by a group of “coffee lovers” who believed coffee should always be served fresh, whether at home or at the office, just like if it were a fancy coffee house. Keurig noticed that employees were always leaving the office in search for a quality cup of coffee so they developed a way to save consumers time by allowing them to brew a fresh, single cup of coffee on their own rather than having to run to a Saxbys, Starbucks, or Crazy Mocha (for those of us who live in Pittsburgh). In 1998, Keurig developed its iconic K-Cup® portion pack brewing system. This K-Cup® is what gave Keurig the edge they were looking forIt allowed them to be a pioneer in the single cup industry. Originally, in 1998, Keurig was introduced to the office market, “Keurig Brewed® provides offices with the following benefits: 1) no one has to make a pot of coffee, 2) everyone can have their own favorite variety, 3) there is no mess or cleanup or stale, wasted coffee, and 4) every cup is fresh and gourmet” (http://www.keurig.com/in-the-news/2010/~/media/files/news%20and%20media%20pdfs/keurig_coprofile.ashx). From the start, they were a hit, now they are found in over 200,000 offices in North America with 50 million Keurig Brewed® consumed monthly. Even more astonishing, is that nationally about 6% of all coffee brewed in offices in Keurig. About 2.5 million cups of Keurig brewed coffee are enjoyed each and every day, and since 1998 over 2 billion have been served.

In June 2006, Keurig became a wholly owned subsidiary of Green Mountain Coffee Roasters, Inc. (NASDAQ: GMCR). This was a brilliant acquisition on the part of Green Mountain. In the years prior to 2006 Green Mountain’s stock prices seemed to hover around 1-2 dollars a share. But in 2006 and beyond Prices have risen nearly 32% to $65.63 a share (in a most recent check), with 141.6 million shares. Now, this does not necessarily mean this increase in stock prices can be accredited all to Keurig but they have for sure helped. In Green Mountain’s 2009 third quarter Keurig accounted for 7-7.5% of all coffee brewers sold in the United States. Also, in its 2009 third quarter, the company shipped 439,000 Keurig brewers — a nearly three-fold rise from the year-ago period — after more than doubling sales in the first two quarters.

Keurig sells their brewing systems at breakeven prices to retailers, and makes a profit from the higher margin K-cup portion pack refills. Keurig sells brewers that range from $79.95 to $249.95, the most basic having only 1 brew size and very basic features (pretty much an on and off switch). The more higher end models have fully programmable functions, a choice of 5-cup sizes (4 oz., 6 oz., 8 oz., 10 oz. and 12 oz.), a removable 60 oz. water reservoir, and Quiet-Brew Technology®, and sleek chrome accents and a blue backlight on the screen. This price range makes it very affordable for almost any household to buy. Now John Smith, the single bachelor, or Mr. Richie Rich, the Fortune 500 CEO can each own a different kind of brewing system. But, no matter what kind of brewing system they have, guess what they must buy, the K-cups. A recent check shows there are 226 different varieties of these K-cups and they are not all Green Mountain Coffee. In fact there are over 20 different brands that are available from Caribou Coffee to Foulger’s Gourmet Selections for coffee and even Ghirardelli’s “Double Chocolate Hot Chocolate”, so you are not just limited to one companies product (sort of). Allowing for a purely customizable experience for each end user. From the consumers perspective this flexibility is well worth the little extra they have to pay for these K-cups; and from Keurig and Green Mountain Coffee’s perspective they have complete dominance over controlling the supply and kinds of these K-cups. It has even been said that coffee giant Starbucks plans to work a deal through that will allow them to supply consumers with Starbucks brand coffee through these K-Cups. Bringing in Starbucks could be nothing but good for Green Mountain and Keurig; a name such as Starbucks would only attract more consumers, thus increasing their market share to even greater numbers. In fact, on March 14, 2011, Jeff Hansberry, who is Starbuck’s President of Global Consumer Products & Foodservice, posted on the Starbuck’s customer service blog:

Thanks for sharing your ideas with us regarding our offering Starbucks K-cups for the Keurig Single-Cup Brewing System. I’m happy to share with you that recently Starbucks and Green Mountain Coffee Roasters (GMCR) announced a strategic relationship to offer Starbucks® and Tazo® K-Cup® portion packs to consumers. Starbucks will be the exclusive, licensed super-premium coffee brand produced by GMCR for the Keurig Single-Cup brewing system. The company plans to make Starbucks K-Cup portion packs available through food, drug, mass, club, specialty and department store retailers throughout the U.S. and Canada beginning in the fall of 2011. We also plan to expand distribution of Starbucks K-Cups and Keurig Single-Cup Brewers to our U.S. and Canada Starbucks stores in early 2012.

Our goal is to offer you, our customers and partners, the highest-quality coffee products and experiences in multiple formats, wherever and whenever you want it.

Did they say Super-Premium? Yes they did! Keurig now has the Mercedes (or BMW whichever you prefer) of coffee producers in their line up, and I am sure Starbucks is just as excited for the new product line as Keurig is.

But, what about the other guys? There needs to be some competition in this single cup of coffee market, well, not really. There are other producers of single cup brewing systems such as Senseo systems from Philips and Sara Lee, Mars Inc’s Flavia systems and Kraft Foods Inc.’s Tassimo brewers. But, let me put it to you this way, I had no idea these guys even existed… nor do I think anyone else really does (sorry if you are reading this while drinking coffee that was brewed from one of these systems). The problem for the competitors is that they are not present in all three-market segments—offices, hotels, and homes—all of which Keurig seems to have on lock down. Flavia focuses primarily on offices (there seems to be one model that is meant for the home use) and Senso, which was an early good player is merely non existent now. Also, in my opinion, the other brewing systems just do not look as sleek or elegant as Keurigs’ do.

All in all, Keurig is a very impressive company. Their product line is the industry standard and they continue to set the bar higher, with new deals, and quality customer assistance. I had my first cup of Keurig brewed coffee this past Christmas break (which was then followed by 3 or 4 more) and although I am not a professional when it comes to coffee I still found it to be of very high quality, the flavor was bold, the water was a perfect temperature and it smelled awesome. “Keurig” is actually derived from the Dutch word for excellence and the way I see it they are excellent from top to bottom, left to right; for all we know, coffee pots are now a thing of the past.



**Due to technical difficulties we recently had to switch domains and transfer all of our website content.  Please keep in mind that while we have been publishing articles for two years, the published dates shown may not reflect the initial publish date.


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