STiR Tea & Coffee Industry International

Volume 3, Number 3

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36 STiR tea & coffee industry international Single Serve Home Brewers eurig Green Mountain sold nearly $1 billion worth of single-cup brewing systems last year, dominating the segment at home appliance stores. Keurig at one point marketed four of the five best selling home brewers but the dozen competitors enter- ing the market with innovative features at lower prices will change the game in 2014. The National Coffee Association's annual National Drinking Trends Survey (Feb. 2014) revealed 15% of American households now own a single-serve brewer. Equally significant, 34% of coffee drinkers now prefer gourmet coffee to traditional brew coffee and half the coffee served in foodservice locations is specialty coffee. NCDT findings indicate that those 25-39 years of age are the strongest consumers of gourmet coffee beverages, with 42% who say they consume daily, as compared with about one-third among consumers aged 18-24 and those 40-59, and just one-quarter of those 60+. Single-serve brewers (home and office) today account for 29% of coffee consumed, up 9% since 2013 with 25% of respondents telling NCA that they will purchase a single-serve machine in the coming six months. There is no question early adopters favored Keurig. President and CEO Brian P. Kelly is counting on them to upgrade to Keurig® 2.0 brewers this fall. This year's Harris Poll named Keurig "Brand of the Year" in the single-cup category for the third year in a row. The prices for three models of Keruig 2.0 have not yet been announced, which can brew three different cup sizes: (1) a 28-oz. K-Carafe, (2) Vue Cup® and (3) K-Cup®, but they are likely to retail from $149 to $199. Sung Oh is skeptical that Keurig will retain its dominance. Oh is a co-founder of Touch Coffee & Beverages and the inventor of the Touch single- serve brewing system, which includes brewers and two new cups designed to pack more coffee. Oh designed the Touch system to be fully compatible with K-Cup® because it is now the standard in single-serve coffee in the U.S. The principle reason that most at-home coffee drinkers, accustomed to paying 5 to 10 cents a cup for ground coffee, have not yet switched to K-Cups is the high price of cups, which is 40- to 75-cents per cup de- pending on the brand, he said. "There is no secret here, the money is in the cups," explains Oh. "Keurig 2.0 will incorporate a lock-out technology so the brewers will only work with licensed K-Cups® but not the unlicensed cups to maintain the high margin from the cups which subsidizes the low margins on the brewers," he said. Owners of home systems tend to be males under 39 with incomes of more than $50,000, and many of them have children. "Our theory is that with more than 15% of the U.S. market having adapted to the K-Cup platform, it has Crossed the Chasm –in reference to the Rogers' diffusion of innovation curve- so it is now entering a new segment of the market, which is the early majority consumers who are very sensitive to price. These new consumers will gravitate toward the more affordable, unlicensed cups – especially as the quality of the cof- fee from these cups are just as good or better than the licensed K-Cups," said Oh. "Our model is the reverse of Keurig. Keurig is rely- ing on the low cost of the brewers for adaption in order to sell high margin cups. For us, we believe that the Touch single-serve brewer. Cuisinart single-serve home brewer. Keurig 2.0 single-serve home brewer. K By Dan Bolton

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