Sales of Keurig brewers are falling. Is America’s love affair with single-serve coffee winding down?
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Keurig has a big problem. The maker of single-serve coffee machines and K-Cup pods isn't just seeing consumer demand for its brewers decline, it's seeing it fall at an accelerating rate. It's a sign that interest in high-tech brewers compatible only with specially packaged, high-cost coffee pods has its limits.
Keurig's brewer sales have fallen for three consecutive quarters following the failed rollout of its highly-anticipated Keurig 2.0 brewer last August. The number of brewers sold fell 22% in the first three months of 2015 (Keurig's fiscal Q2 in the chart below), compared to a year earlier.
Keurig, initially confident the new machine would boost 2015 sales, recently told investors its sales may plateau this year based on recent trends.
Unlike its previous machines, Keurig 2.0 offered the flexibility of brewing one to four cups of coffee at a time. Yet the launch was troubled from the start. At $140 to $200, it was a costly coffee maker--the less expensive version wouldn't launch till after the critical holiday retail season. But the far bigger problem is the machine is only compatible with a limited range of company-approved coffee pods.
Keurig made roughly three-quarters of its $4.7 billion in sales last fiscal year from K-Cups, both its own brands like Green Mountain and a large portfolio of partner brands like Starbucks and Folgers.
While these so-called "licensed" brands make up the bulk of K-Cup sales, competitors were starting to make their own after the expiry of a number of patents opened up the system to outsiders. Supermarkets, for example, were making their own labeled pods.
To protect its business and squeeze out rogue pod makers, Keurig designed the new 2.0 brewer to work only with a new system of K-Cups that it could control the production of. It would phase out the old pods, as well as get rid of the refillable pods that some customers had begun using. Customers weren't happy.
"They underestimated the consumer pushback to 2.0 and have so far failed to adequately adjust," says UBS analyst Steve Powers. "There is legitimate concern around where they are heading."
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