The company has quickly risen to profitability, raking in over $10 million in annual sales in less than 12 months since incorporation. So how has this year-old startup found success in an already crowded category with a longtime leader? Because the maturing market is being forced to evolve toward better quality and greater variety, co-founder and principal Robin White told FoodNavigator-USA.
“Single-cup coffee is no longer a niche product. It’s moved past that critical stage where it’s now becoming mainstream,” White said. “I compare the single-cup market to where roast and ground coffee was 10 years ago. We’re essentially dealing with the same factors, just the delivery vehicle has changed. But once you get to that point, you have to start asking, what’s next? We felt that missing piece or area for improvement was in the quality of the drinks.”
White previously worked for Van Houtte, a distributor of Keurig, when K-cups were first introduced in 1998.
“They showed us this new thing they said would enable us to convince customers that instead of paying 20 or 25 cents for a pack of ground coffee, we could get them to pay 65 cents to brew one up at a time. It was a foreign concept back then. We were cynical. But they proved it.”
The rest, as they say, is history. By 2012, single-serve coffee pods had eclipsed the $1.8 billion mark, an 80% increase from 2011, according to Packaged Facts, which estimates the category will be worth upwards of $5bn by 2016. Single-serve pods now account for over 41% of dollar sales of ground coffee in the US, according to 2014 data from Nielsen. The clear leader in the pods market is still Green Mountain Coffee Roasters, with 34.8% of market share, followed by Starbucks (14%), JM Smucker (11%) and private label pods (10.2%).
‘Difficult road’ for any company trying to control this huge category and limit consumer choice
Since K-cups went off patent in 2012, a slew of unlicensed versions (which typically sell for 15-25% less) gave the market a jolt. By the fourth quarter of 2013, they accounted for a record 12% of sales of single-serve coffee/tea for Keurig machines, according to CEO Brian Kelley. In response, the company unveiled Keurig 2.0, which limits consumers who own these brewers to using only Keurig-licensed cups and locks out third-party cups from brands including Tim Hortons, Kraft and Second Cup.
The move has come under fire for eliminating choice and competition, prompting two lawsuits from competitors claiming breaches of anti-trust laws, along with several class action lawsuits from consumers.
“Nobody knows for sure how many brewers are out there, but it’s likely in the tens of millions,” White said. “There’s been a lot of growth in non-Keurig cups, and I think it’s going to be a difficult road for any company to try to take control of a huge category like this and convince consumers they should give up the ability to choose what products they want to buy—especially food products. People are very sensitive about their choices when it comes to food. Retailers, too, don't like dealing with a company with no serious competitors, as they lose all negotiating ability.”
The company plans to roll out a Supercharger kit to upgrade Keurig brewers so they accept its larger-capacity SuperCups. Moreover, it licensed celebrity brands Cake Boss (from baker Buddy Valastro) and Food Network chef Guy Fieri for Keurig-compatible single-serve cups.