|As Keurig prepares for the launch of its 2.0 brewer, the company is adding previously unlicensed brands to its system of single-serve coffee pods.|
WATERBURY, VT. — Heading into the holiday season, Keurig Green Mountain, Inc. is focused on three priorities, which include the imminent launch of the new Keurig 2.0 brewer, a transition to portion packs that are compatible with the new platform, and adding more unlicensed brands to the system. Brian Kelley, president and chief executive officer, discussed the initiatives during an Aug. 6 earnings call with financial analysts.
“We have ramped production of our Keurig 2.0 brewers and began shipping product to customers last week in preparation for the imminent launch,” Mr. Kelley said. “We expect that 2.0 will appeal to non-Keurig users who have yet to purchase a brewer because they want the option to brew larger volumes with Keurig simplicity. This was validated in our recently closed home use tests where owners of non-Keurig drip coffee machines preferred the Keurig 2.0 versus their current drip brewer by at least five to one.”
The brewing system, which dispenses both single-serve cups and full pots of coffee, also is expected to capture a portion of coffee consumption not occurring in households with Keurig machines due to an occasional need for multi-serve brewing. In advance of Keurig 2.0’s debut this fall, the company has been transitioning to coffee portion packs developed for the new machine.
“Since July of this year, 100% of our at-home K-Cup pack inventory has been 2.0-enabled with our proprietary technology, which will provide consumers with the full features and benefits of our new Keurig 2.0 brewers,” Mr. Kelley said. “Since January, we’ve been working closely with customers and retailers to ensure that they are appropriately rotating portion pack inventories in preparation for the launch of Keurig 2.0.”
Keurig said it is pleased with its progress on its third priority of introducing previously unlicensed brands to the system.
“We are now seeing unlicensed share flatten out and begin to decline as we’ve started shipping newly licensed packs, including Peet’s and Archer Farms among others,” Mr. Kelley said. “With the recent introduction of new licensed partners like BJ’s Wholesale Club, Harris Teeter, Nestle and others, we expect the share of owned and licensed brands in the system to increase noticeably through the end of fiscal year 2014 and into 2015.”
The company also is expanding in away-from-home channels, highlighted recently by a partnership with Subway to add single-serve coffee brewers in its restaurants.
“We believe there are a number of quick-serve restaurants where a single-serve Keurig solution can deliver significant benefit both to operators and consumers, and we are actively pursuing these opportunities,” Mr. Kelley said.
On the Keurig Cold front, plans to launch the cold beverage brewing system in fiscal 2015 are on track, with early production under way in Vermont and the purchase of a dedicated facility for the platform in Georgia during the quarter.
“Meanwhile we’re on track and working closely with the Coca-Cola Co. to develop and perfect some of their brands for our system,” Mr. Kelley said. “We’re also developing and perfecting a variety of our own new brands to be launched in our cold system and we’re working with other potential cold partners.”
Additionally, Keurig is pursuing international growth opportunities, which include the launch of coffee brewers in the United Kingdom away-from-home channel earlier this year.
“While we believe there is significant opportunity for both our hot and cold systems in international geographies, we will be selective and disciplined in pursuing them and we do not expect meaningful contribution from international revenue in the short term,” Mr. Kelley said.
For the third quarter ended June 28, net income attributable to Keurig increased to $155,151,000, equal to 95c per share on the common stock, up 33% from $116,272,000, or 95c per share, in the comparable quarter.Net sales climbed 5.7% to $1,022,371,000 from $967,072,000, driven by a 10% increase in sales of portion packs that offset a 4% decline in brewers and accessories and a 17% decrease in sales of other Keurig products, including traditional bagged coffee.