G.M.C.R. playing hardball with Keurig 2.0

by Keith Nunes
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WATERBURY, VT. — When Green Mountain Coffee Roasters’ patents on its K-Cup portion packs ran out in 2012, the question surrounding the company was how would it protect its market share? The Keurig 2.0 is the company’s answer.

“Over the next 12 months, we will launch a new lineup of hot system brewers that deliver breakthrough benefits for the consumer,” said Brian Kelley, president and chief executive officer of G.M.C.R., during a conference call with financial analysts on Nov. 20. “We also will launch portion packs that include an interactive readability that will deliver the full extent of the breakthrough consumer benefits coming with our next generation of Keurig 2.0 brewers.”

Mr. Kelley said that in an effort to ensure the consistent quality of G.M.C.R.’s products, the new system will not work with K-Cups produced by unlicensed manufacturers.

“All of our 35-plus owned, licensed, partnered, and private label brands that exist today in our Keurig system will continue to be offered in our Keurig 2.0 system, and as we stated, we are actively engaged in discussions with a large number of unlicensed players to welcome them into the system,” Mr. Kelley said. “As part of the same Keurig 2.0 launch, we will be transitioning our lineup of Keurig brewers over fiscal 2014 and early 2015.

“Ultimately, within about a year of its launch, Keurig 2.0 will replace our current lineup of both K-Cup and Vue brewers at consumer friendly price points. This is a very important distinction between 2.0 and the Vue launch, and we’re confident that our Keurig 2.0 brewers will fundamentally improve and transform the Keurig brewing system for our current and new consumers.”

Following the expiration of G.M.C.R.’s K-Cup patents, unlicensed competitors entered the market offering products suitable for use in Keurig 1.0 brewers and at price points 15% to 25% lower than licensed K-Cup brands.

“In total, for the full year, across all U.S. channels, we estimate that unlicensed packs achieved 8% share of the Keurig platform, and we estimate that share climbed to 12% by the end of our fourth quarter,” Mr. Kelley said. “We expect unlicensed share of the system to continue to grow through the first half of fiscal year 2014 and then begin to decline in the second half and thereafter.”

A challenge facing G.M.C.R. is getting the approximately 16 million consumers who have purchased Keurig 1.0 systems during the past two years to upgrade to the new system.

“The job of innovation is to give the consumers something better than they have today and do it at a value,” Mr. Kelley said. “So we think that what we’re going to give them with the Keurig 2.0 is not only what they have today but much more, and (we’re) going to do it at value pricing that they’re used to today.”

Mr. Kelley did note that even with the new system a “K-Cup will be a K-Cup” and the company does not anticipate much of a cost difference.

“There will be some other options consumers can have, and I think that’s all we should say,” he told the financial analysts.

Mr. Kelley made his comments in conjunction with the release of G.M.C.R.’s financial results for fiscal year 2013. For the year ended Sept. 28, the company earned $483.2 million, equal to $3.16 per share on the common stock. Compared to fiscal 2012, G.M.C.R.’s net income and earnings per share rose 33% and 39%, respectively.

Sales for the year increased 13% to $4,358.1 million.
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READER COMMENTS (7)

By Jeffrey A Swan 8/17/2014 10:44:12 PM
As if the price of K-cups is not bad enough, my 2nd Keurig just broke. That makes 2 that last about 18mos. Time to go back to old school..Mr Coffee!0

By offplumb 3/11/2014 3:40:11 PM
I wonder if this is a ploy to spike the sale of their current machines? I have never owned a Keurig, but felt oddly compelled to purchase one after hearing this announcement. interesting..

By Mark A. Frazier 1/16/2014 5:07:58 PM
It seems to me to be a bit "unfair" to not let me choose the products I can purchase. There are so many better other brands in the market as well as plenty of machines that work with all cups....I'll move on.

By bjm 12/3/2013 3:59:49 PM
Wow, the company isn't making enough money??? well, I hope that the Keurig 2.0 brewer lasts longer the their current model(s). I am on my 4th. If I didn't enjoy the K cup coffee so much, I would go back to my Mr. Coffee. And it may come down to if it becomes too expensive for me.

By Peggy 12/3/2013 10:39:38 AM
As a relatively new k-cup owner (mother's day gift) this news is disturbing at best. Purchasing this machine was a financial sacrifice of love from my family. My favorite brand of coffee is green mountain but apparently I'm going to be punished for being a loyal customer? And, might I add, I was considering buying for the office but not now! Very disappointed ...

By E Jones 12/2/2013 3:26:24 PM
There will always be individuals who are willing to pay for the latest and greatest in terms of technology. However, there are several individuals who are grateful for what they already have. My Keurig was given to me as a gift THIS YEAR! I had not purchased one because of pricing and being able to fully justify the expense of k cups vs. regular brewing. Up to this point, I was pleased with the results despite pricing. However, you can rest assured this customer will not be upgrading. I work hard for my money as did the person who gave me the gift. Looks like it was money thrown away. I guess I'm considered "old school" in that I thought loyalty and truly satisfying the customer were what matters.

By R.Glatt 12/2/2013 9:59:39 AM
Have owned several Keurig coffee makers over the last 8-10 years...Your customer is smart enough to understand your profits come from the sale of the coffee pods and not the brewing machine....I can speak for myself and many of my friends who were customers over the years and say if you do what you propose I for one will look for another way to brew my coffee and will feel that you as a company was not really interested in the average consumer of your product..When you first came on the scene you attracted the "upper middle class of customer" now that you have the rest of us you will chase us away..Just a disappointed consumer41714