Single-Serve Advancing but Facing Wide-Ranging Challenges
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March 2014 C&CI • Single Serve • 35 Single-serve advancing but facing wide-ranging challenges n its most recent financial announcement, about its results for the The market for single-serve coffee continues to grow Iquarter ending 31st December 2013, Green Mountain Coffee Roasters (GMCR) rapidly. There are opportunities aplenty say leading said sales had grown by 4 per cent, a result it attributed to continuing demand players in the market, but most also agree that the for its Keurig brewing system. category has a range of challenges to address The company’s President and CEO, Brian P Kelley, said: “We achieved record brewer volume, revenue and retail sell- Krispy Kreme is the latest brand to become through despite a challenging holiday available in Keurig brewers season for many retailers, demonstrating the growing popularity of our Keurig brewing system among North American consumers. We believe these results will drive continued strong Keurig brewer installed base growth and future portion pack consumption.” At about the same time, GMCR unveiled its next-generation Keurig, the Keurig Carafe, which will enable users to brew a single cup and a carafe using Keurig branded packs. The ‘K-Carafe’ capability for its Keurig 2.0 brewing system will be available for sale in the autumn of 2014. Brian P Kelley: “Keurig brewer owners and non-owners will see Krispy Kreme coffee available “Keurig 2.0 alike told us the brewer functionality they in K-Cup packs for the Keurig brewing includes significant advancements wanted most was the ability to brew system. The companies plan to launch in roasting and a single serving and a pot of coffee Krispy Kreme coffees, Smooth and Decaf, flavour extraction, from one system, with Keurig speed, in K-Cup packs for Keurig brewers by thermodynamics, and mechanical and convenience and brand choice,” said Mr the end of 2014. The new Krispy Kreme software design” Kelley. “Our next generation Keurig 2.0 K-Cup packs will be available at Keurig. brewers will do just that.” com and KrispyKreme.com, as well as participating Krispy Kreme shops, acts to unlawfully maintain a monopoly grocery, retail, and away-from-home over the cups used in single-serve Multi-cup option channels throughout the US. brewers. In its complaint, filed in the US Mr Kelley explained that the innovation District Court for the Southern District required to deliver the carafe functionality of New York, TreeHouse asserts claims came from close collaboration of the Law suit targets against Green Mountain for violation of company’s beverage and brewer federal antitrust laws, and state antitrust engineering teams. “We made significant lock-out function and unfair competition statutes and advancements in roasting and flavour The single-serve market has become a common law of the states of New York, extraction, thermodynamics, and very litigious space in the last couple of Wisconsin and Illinois. mechanical and software design to ensure years, with Nestlé Nespresso launching a Specifically, the plaintiffs assert that that our Keurig 2.0 brewing system will series of, ultimately unsuccessful law suits various exclusionary agreements between give consumers a perfect, consistent cup against companies producing products Green Mountain and various suppliers of high quality coffee at the touch of a that are compatible with its coffee brewers. and distributors are designed to maintain button, whether they choose to brew a February saw TreeHouse Foods, and Green Mountain’s monopoly in the single- single serving, or choose to brew a carafe two wholly-owned subsidiaries, Bay Valley cup market after the expiration of Green with our K-Carafe pack,” he said. Foods and Sturm Foods, file a suit against Mountain’s patents. GMCR also recently announced a multi- Green Mountain Coffee Roasters and Furthermore, Green Mountain has year agreement with Krispy Kreme that Keurig, accusing them of anticompetitive announced that its Keurig 2.0 brewer 36 • Single Serve • C&CI March 2014 continues to grow both in terms of volume and value (5.6 per cent volume, 16.5 per cent value across 26 markets.). We have demonstrated that we are well positioned to capitalise on this and benefit from increased consumer awareness. Premium experiences “What we have seen is that as tastes evolve, more and more consumers are looking for high quality coffee experiences. They also want to learn more about the coffee they drink. Consumers come from being coffee drinkers to coffee connoisseurs. People increasingly look for Nespresso says its success is premium experiences and Nespresso is based on the fact that “people well-positioned to cater to that. increasingly look for premium experiences” “Today, we are competing against about 130 different product offerings in the portioned coffee segment around the will contain what TreeHouse described world, including 90 that claim compatibility as “anticompetitive lock-out technology” with Nespresso machines. Despite the that will prevent the Keurig 2.0 brewers presence of generic capsules,” said the from functioning with cups supplied company, “consumers continue to choose by unlicensed competitors. TreeHouse Nespresso in both its established markets asserts that these actions are “an attempt in Europe and in its developing markets to eliminate consumer choice and to across the world. coerce Keurig 2.0 brewer owners into “Our direct-to-consumer business purchasing only Green Mountain owned or model, with our extensive retail network, licensed K-cups.” 24/7 phone line and e-commerce platform, is a clear distinction to the crowded supermarket environment, where our Green Mountain has competitors are increasingly forced to compete against one another for shelf announced that its Keurig space. We are confident that this unique 2.0 brewer, to be launched route to market, combined with our total consumer offering will continue to earn later this year, will contain Rapid growth in the single-serve market has the loyalty of our Club Members and new produced a host of opportunities in the supply what TreeHouse described chain consumers worldwide.” as “anticompetitive lock-out practices that violate the law. We are technology” seeking free and open competition on the Manufacturers merits to bring our customers high quality and innovative products at better prices. benefit from fast A favourable ruling for TreeHouse and our In addition, Green Mountain has subsidiary businesses will prove beneficial pace of growth announced plans to eliminate the current to the entire spectrum of consumers, Attention in the single-serve market has line-up of K-cup brewers, which function retailers and suppliers. tended to focus on the industry leaders with competitive cups, to exclude such as Keurig and Nestlé Nespresso, but competition and force consumers to a host of companies in the supply chain purchase higher-priced Green Mountain Nespresso for single serve coffee are also doing very cups. well out of it. C&CI spoke to a number of TreeHouse’s lawsuit maintains that any “performing strongly” them, including Pod Pack, Pacific Bag, supposed consumer benefits from the new Responding to questions from C&CI, the Glatfelter and MPE in the US, and Rychiger technology are more than outweighed by other leading player in the single serve and IMA Industries in Europe. the harm to competition and consumers market, Nespresso, said it had “performed Pod Pack is a coffee co-packer that by eliminating choice and forcing them strongly in 2013, delivering growth in its specializes in private label and national to pay higher prices for Green Mountain core European markets and accelerating branding for ‘soft’ pods with a focus cups. Sam K Reed, Chairman, President in the Americas. on single-cup brewing solutions for and Chief Executive Officer of TreeHouse “The portioned coffee segment is very hospitality, foodservice, OCS, and Foods, said: “We reluctantly brought dynamic and the fastest growing segment homes. Asked what it believes are the this law suit not just for ourselves, but of the global coffee market,” said the key drivers in the single-serve market, for consumers and other companies company. “According to Nielsen data from the company said: “We think that Green that similarly encounter anticompetitive June 2013, the portioned coffee category Mountain/Keurig have done a great job March 2014 C&CI • Single Serve • 37 will address the quality, cost, and green “These areas are still underdeveloped. Quality is the biggest issues. Keurig did have a 20 year head There is further growth potential in Canada issue. Second is the cost start.” and possibly Europe,” it said, noting that, of a cup of coffee, although right now, Keurig machines are most in demand in the US, because that is the consumers haven’t Consumers will machine that is most familiar to consumers. hesitated about paying Questioned about whether it expected determine what pods or capsules to be most popular with US$0.65 per cup, which consumers in future, the company said equates to over US$30 per happens capsules as are winning today. “The future In recent months some analysts have depends on what consumers need or pound for single cup suggested that the rate of growth in single- what they do. If consumers become more serve is slowing, but Pod Pack said it did concerned about the environment and are of introducing coffee consumers to the not agree. The company feels that there is willing to put more effort into being green, convenience of the single-cup brewing plenty of growth left in the US on the West then capsules are going to be in trouble,” concept. We believe that Keurig convinced Coast, Midwest, Southeast, and Southwest. said the company. office consumers of the benefits of convenience and variety (of the Keurig brewing system) at work. These same consumers have begun to demand the same benefits at home.” Asked what challenges the single- serve market faced, Pod Pack said it believed that single-cup consumers are looking for a significantly higher quality, www.rychiger.com better tasting cup of coffee.