After its six-year foray to craft a cold-drinks machine bombed big for Keurig Green Mountain, the coffee company looks to be clinging to its K-Cups in an increasingly competitive coffee business.
The Vermont company, which maintains a research facility in Burlington, Mass., now needs to apply the lessons from the debacle of its Kold carbonated drinks system to its coffee business, where sales have flattened out, according to analysts who follow the company.
Keurig isn’t saying much about what’s next for the company, but a spokeswoman acknowledged flaws found too late, after the machine reached the storefront.
“No matter how much you test things, sometimes you don’t get the full impact of consumer reactions until you actually have it in people’s homes and on people’s counters,” Keurig spokeswoman Suzanne DuLong said.
But in the long run-up to the Kold system’s launch late last year, analysts had warned that the machine was too big and bulky, and most importantly, cost too much: originally $369.99 for the machine, and more than $1 for each 8-ounce drink.
During its six-year development, Keurig interviewed thousands of consumers and even tapped former aerospace technicians for help in refining the technology.
“[Kold] missed on all cylinders,” said Jim Speltz, the former chief executive of speciality retailer Brookstone who is now an industry consultant. “You’ve got to continuously test the market, and the longer your development cycle is, the more important you not turn a blind eye.”
Price has long been a knock on Keurig’s coffee business, too. On a per-pound basis, its K-Cup single servings cost more than coffee sold in bulk. A 24-pack of K-Cups, featuring brands such as Starbucks and Krispy Kreme, cost about $15.
Keurig faces competition from third parties after its K-Cup patent expired in 2012, said Duane Stanford, editor of the trade publication Beverage Digest. The company now allows its customers to use third-party or reusable pods in its Keurig 2.0 machines, after consumers complained that when first introduced in 2014, the machines prevented them from using any coffee pods but K-Cups.
Stanford said Keurig needs to lower its coffee prices to retain its current K-Cup customers, and to win over those coffee drinkers who have yet to buy a Keurig machine.
“They’re going to have to figure out a way to expand distribution and sales enough to bring down the cost of those pods,” Stanford said. He acknowledged Keurig will likely not be able to make its single servings competitive with bulk coffee, nor should it try. But, he added, “clearly consumers are going to want to buy those that are priced lower.”
Maybe the most important development since the launch of the Kold system is that Keurig is now under new ownership, who seem to be running at a much faster pace than the team that spent six years trying to perfect the cold-drinks system.
When it unveiled Kold last year, Keurig executives acknowledged that the high price might keep it from quickly catching on with consumers. They expressed hope that retailers would offer discounts that would entice consumers to embrace the machines.
But in December, JAB Holding Co., a European firm with a broadening coffee portfolio, bought Keurig for $13.9 billion and took the company private. JAB owns stakes in other major coffee companies, including Caribou Coffee and Espresso House.
After the acquisition, JAB partner Bart Becht became chairman of Keurig. Then the firm installed its own CEO, Robert Gamgort, a food industry veteran who previously ran Pinnacle Foods Inc., which owns such brands as Vlasic. Former chief executive Brian Kelley has stayed on with Keurig’s board.
Barely a month after Gamgort started work at Keurig in early May, the company pulled Kold from the shelves.
Through a spokesperson, JAB, which manages the fortune of the Reimann family of Germany, declined to comment
Bruce Cohen, head of private equity and strategy practice for the consulting firm Kurt Salmon in San Francisco, said it was striking how quickly Keurig’s new owners cut their losses on the cold drinks system.
“What the consumer industry needs is more bold companies like that,” Cohen said. “There aren’t enough companies that move quickly like that. In our business, we wind up coming in and seeing this downward slope for quarters and quarters and quarters.”