STiR coffee and tea magazine

Volume 5, Number 1

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30 STiR tea & coffee industry international / Issue 1, 2016 (February/March) Everyone is waiting to find out what comes next By Dan Bolton Restoring Single Serve Equilibrium E quilibrium in a market as fluid as global coffee is fleeting: single-serve was the lone exception. Since 1986 Nespresso has dominated the European single-serve market with multiple brewers and espresso capsules that earned the company $5 billion last year. Rival Keurig Green Mountain practically owns the North American single-serve market with an 89% share, also earning $5 billion. Pods accounted for 34% of total coffee sales in 2014, according to Euromonitor. That's 134,000% growth since 2000. The segment seemed quite stable during the past decade. In Western Europe Nes- presso held a dominate share. In North America it was Keurig. There were skirmishes in their respective fiefdoms. Keurig made limited headway introducing brewers to of- fices in the UK while Nespresso opened Nespresso boutiques in the US and Canada featuring a brewer that makes 8oz American-style coffee — but for the most part these competitors focused largely on keeping up with rapid growth in their home markets. All that changed in December when JAB Holdings made a surprise offer of $92 per share for publicly held Keurig. The 77.9% premium totaled $13.9 billion. In an instant the Jacobs Douwe Egberts (JDE) partnership between JAB Holdings and Mondelez International disrupted the decade-long single-serve equilibrium for the world's major coffee brands. Keurig's stock was falling, which suggests the premium as a strategic ac- quisition since 2015 marked the end of Keurig's high-flying sales. In February 2106 Keurig reported unit sales of brewers were down 7% — the sixth consecutive quarter drop. The company reported a $60.3 million decrease in brewers and accessory sales compounded by continuing declines in sales of its K-Cups beginning that began in mid-2015. Sales slipped $62.2 million for the quarter ending January. Meanwhile a less dramatic development is quietly undermined the thriving private label capsule manufacturing segment as mid-sized roasters and coffee chains begin to fill and pack their own capsules using high-capacity equipment that sells for under $7,000. North Americans are far from discarding the format. Keurig estimates there are 22.9 million active brewers with many more non-licensed models. Household penetration is greater than one third (rising to 40% in Canada and in several countries in Western Europe). The pace has slowed however and the market is in flux. Tumultuous 2016 Expect 2016 to be a tumultuous year. Since Green Mountain Coffee Roasters acquired Keurig in 2004 and with the launch of Nespresso's Dulce Gusto brand in 2006, the trajectory of single-serve has been stratospheric. Will it fall off the cliff? Not likely. Keurig Green Mountain headquarters in Burlington, Mass.

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