Keurig playing to win

by Monica Watrous    View Me on Google+
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CHICAGO — Five factors give Keurig Green Mountain a competitive edge, the company said during a June 11 presentation at the William Blair Growth Stock Conference in Chicago. As more players enter the home beverage system space, Keurig said it leads the market through advantages in innovation and partnerships.

“We play to win,” said Brian Kelley, president and chief executive officer of the Waterbury, Vt.-based company. “We want to win with character. We want to win the right way, but we want to win, and so we play to win.”

Keurig’s first competitive advantage is its business model, which combines the expertise of a retail beverage company with that of a high-tech appliance company.

“We are a technology company in the beverage business, and that is what has allowed us to innovate and continue to improve and redefine the beverage categories,” Mr. Kelley said.

Holistic innovation is another key asset for Keurig, which designs each component in its brewing systems.

“There are more than 600 components,” Mr. Kelley said. “We design the brewer itself, we design the pods, we design the beverage in the pod, we design the lines that make the pod. And so that has become another key to our advantage is that we design a system, and it becomes very hard to replicate.”

Keurig’s multi-branded platform is a third advantage for the company. With more than 48 brands in the system, the brewer offers consumers a wider variety of coffee and tea options than a traditional machine.

“We see it this way; typically the consumer has tremendous choice at the store, but when you go to their home they don’t have the same kind of variety in their pantry that they do on the shelf,” Mr. Kelley said. “It’s actually quite different with the Keurig system, where you see quite a bit more variety than they would have ever had in the coffee business before because you might have 10 or 12 brands in their home at any given time instead of one or two.”

Forthcoming innovation includes the Keurig 2.0, which brews both single cups and whole carafes of coffee.
 

The fourth factor driving Keurig’s competitive edge is the brewer’s “smart” countertop real estate, a function of prudent design.

Finally, mutually beneficial partnerships represent the fifth advantage for Keurig, which has cultivated strong strategic relationships with brands like Starbucks, Folgers and Coca-Cola, as well as supply-side partnerships with coffee growers and makers of machine parts.

As an example, a recently announced partnership with Subway broadens Keurig’s reach and scale in food service. About half of Subway restaurants in North America currently use a Keurig system to brew single-serve coffees.

“Typically what many fast-food chains who don’t have high coffee incidence have faced, if they sell 15 cups a day, they sell them very sporadically,” Mr. Kelley said. “And so they have to come in and brew a pot of regular and decaf and they may sell one or two cups. Then they dump that out and they brew it again and they wait for the next consumers to come in who want coffee. They may sell 15 or 20 cups a day like that, but it’s not always fresh or, if they want to keep it fresh, they have to waste a lot of coffee. So this is a terrific solution for Subway.”

Beyond its noted advantages, Keurig said technical differences in the brewers themselves set the brand apart from such competitors as Nestle S.A. and SodaStream.

Nestle’s flagship Nespresso system, for example, dispenses only espresso beverages, while Keurig machines brew coffee, tea, fruit drinks and cocoa.

“The second thing is the Nespresso system is a closed system,” Mr. Kelley said. “It’s a Nestle system with one brand, and ours is an open system with multiple brands. And I think then the third difference would be the distribution model. We have a model that goes through retail and on-line. They have a model that goes through their own captive retail that they own.”

But new innovation on tap from Nestle may challenge Keurig’s market share. Nestle’s VertuoLine system produces both American-style large-cup coffees and European espressos, with a product range that includes eight large-cup varieties and four espresso blends.

“It’s a filtered coffee, but it’s a different kind of filtered coffee,” Mr. Kelley said. “It has a crema on the top, a brown crema that is unique for the American consumer. And so we think it’s beautiful. We think it’s well-designed and, like everything they do, it’s very well done. And we will see. Of course, we watch it. Any time Nestle is in the market with something we are going to watch it and we are going to be very, very careful to make sure that we can compete effectively.”

On the forthcoming launch of Keurig Cold, a cold beverage brewing system developed in a partnership with Coca-Cola, Keurig will face a new foe in SodaSteam.

“Do we see SodaStream as a competitor to the new Keurig Cold?” Mr. Kelley said. “Obviously, we do. They have done a terrific job of really introducing at-home carbonated beverages. It’s different. Theirs is a different process than ours and a different machine than ours, and so we will see what kind of impact and dynamic in terms of competition happens in the market.”

Keurig Cold is designed to produce cold, carbonated drinks without the need for CO2 refills.

“They do not deliver a cold beverage today,” Mr. Kelley said. “There are a number of other differences versus the technical piece we put out there in terms of exact dosing. (With SodaStream), the consumer can choose how much syrup they put in and how much carbonation they put in, so it is a different machine.

“They have done a great job at introducing, really globally, the cold beverage at-home creation category, so we have a lot of respect for them.”
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READER COMMENTS (1)

By Lewis Covin 6/18/2014 10:18:51 AM
The Keurig system is great in the home of non or rarely coffee drinkers. It allows you to always have that fresh cup of coffee waiting on friends who are coffee fiends with no waste or worry of being stale. Plus the hot chocolate is great as are the teas.