The introduction of the new Keurig 2.0 has been a fundamental shift in not only how Keurig delivers its key product to customers, coffee pods that is, not coffee machines, but how this will impact on a growing market that Keurig now dominates. The company has seen the rising competition and demand for third party supplies of coffee pods and has responded with an aggressive change in product and marketing.
The growth of the single serve coffee market around the world has been staggering. In North America alone it is estimated that there are 25 million of these machines in homes, giving them a market penetration of around 15 per cent of households. And in 2015 it is estimated that over 10 BILLION coffee pods for these machines will be sold in this market alone. So world wide? This is estimated to be reaching 20 billion. That is a lot of coffee pods!
And one of the biggest players in this North American market is of course Keurig Green Mountain. Coming together in 2006 through Green Mountain Coffee purchasing Keurig, the combined firm has grown from year to year with Keurig now being the dominant player in the market. Although it faces increasing competition from the likes of Nespresso, Starbucks and Tassimo, Keurig has been able to maintain and grow its share in this competitive market.
However, despite this position Keurig hasn’t sat back and waited for others to get ahead of it. Back in 2012 when its patents around the K Cup pod technology expired, the firm knew that others wouldn’t be far behind wanting to tap into a lucrative market that showed year-on-year grow and profitable margins to be had for those able to achieve the best market distribution funnels.
The introduction of Keurig 2.0 this year has been part of Keurig’s response to the growth in third parties tapping into its distribution system and strengthening its distribution funnel ahead of the competition. Through well targeted marketing, including product placements in television shows and films at the box office, brand recognition grew for Keurig. However, the ability of other firms to rely on even greater brand loyalty, firms such as Starbucks, Keurig needed to protect its dominance in the home kitchen.
In essence Keurig 2.0 is the company’s move into digital rights management (DRM) through the use of radio frequency identification (RFID) technology. And this is the biggest change current Keurig users will find; their current stock of K-Cups won’t work if they go out and buy a new brewer. The Keurig 2.0 brewers will only work with the new K Cups that are bring produced for these machines. The clever technology in the 2.0 machines uses an infra-red light to read the coding imbedded in the new K Cups. If it doesn’t find what it is looking for if comes back with an “Oops!” message on the LCD.
What Keurig is of course hoping is this leap forward will help it to claw back the sole use of the pods it produces for use in its machines, rather than the losses it has been feeling with third parties producing pods that can be used in Keurig brewers. Even though the company has seen growing sales and profitability it has felt the financial pain of its customers moving away from its own pods and to those of its competitors.
And of course for Keurig this is where the margins are in this business. Like many successful companies around the world you need to have control over the funnel to the sale of your product to ensure you are the source of the products or services being purchased. Like Apple has done with its iTunes and App store funnels, perhaps we will see Keurig in the future allowing other producers access to its technology through licensing and so ensuring that single cup coffee market growth continues for Keurig’s continued financial success; and of course for the customer having the great choice in pods it can use in its Keurig brewers.