Down to Business: Competition brewing for coffeemakers
I’ve never been an early adopter. I didn’t get an automatic garage-door opener until the house I bought a decade ago came with one; I didn’t opt for a smartphone until that seemed the only choice available.
So I’m wondering whether it’s time to start paying attention to single-serve coffeemakers, which appear to be all the rage.
You may know them by the name of the leading manufacturer, Keurig, which shipped a phenomenal 4.2 million of the hot- and cold-beverage brewers in the quarter leading up to Christmas last year. And if you didn’t get a single-serve machine as a gift then, you could this year, as Keurig Inc. rolls out a next-generation brewer called Vue and coffee giant Starbucks enters the fray for the holidays with an espresso maker dubbed Verismo.
Could a rumble be brewing in the kitchen?
Much of the credit for the development of the U.S. single-serve market belongs to Vermont-based Green Mountain Coffee Roasters. The company, with roots in a retail coffee shop in the 1980s, soon focused on producing its fair-trade, organic and specialty coffee for wholesale customers. In the mid-1990s, it took a stake in Keurig Inc. of Wakefield, Mass., which was developing the single-serve brewer, then began packaging the coffee pods, called K-Cups, that were used in the machine.
Today, Keurig Inc. is owned by Green Mountain, which produces K-Cups under 25 brands, including Tully’s, Timothy’s and its own Green Mountain, offering 200 varieties of coffee, tea, cocoa, iced and fruit-based drinks exclusively for the Keurig brewers. Last year, Green Mountain inked deals to put Dunkin Donuts’ and Starbucks’ coffee into K-Cups for use in the machines — signaling that U.S. single-serve use had gone mainstream.
But with analysts valuing the global single-cup market at $8 billion, Green Mountain was due some competition. And Starbucks obliged, announcing plans last week for the Verismo, a machine to offer the “Starbucks espresso experience outside of our stores,” as CEO Howard Schultz described it.
Both Schultz and his counterpart at Green Mountain, CEO Lawrence Blanford, were quick to underscore that nothing in Starbucks’ Verismo announcement would affect the companies’ K-Cup deal. And each spent time explaining the high-pressure (Verismo) and low-pressure (Keurig) brewing differences of their machines, meaning they wouldn’t be direct competitors.
For Schultz, Verismo is another platform for single-serve coffee at home or the office: from the instant Via Ready Brew, introduced in 2009, to last year’s K-Cup deal for brewed coffee, to the new machine for espresso. “The premium single-cup segment is the fastest-growing business within the global coffee industry,” Schultz said in a statement released by the company.
For its part, Green Mountain isn’t just sitting back and watching. The Keurig Vue, already being rolled out through retailer Bed, Bath & Beyond, will offer new options in portion size and brewing temperature and strength, as well as a pressure selector for frothier drinks. And the company is working with Lavazza of Italy on an espresso machine.
When Green Mountain released results last month for the fiscal first quarter, which ended on Christmas Eve, it announced its “first ever billion-dollar sales quarter” — due in part to the 4.2 million Keurig machines shipped then. CEO Blanford, though, sees the prospect of even more sales, telling analysts on a conference call that with coffeemakers now in 90 million U.S. households, “we believe there’s a lot of opportunity yet for additional Keurig system adoption.”
And by that, I presume he means latecomers like me.