KEURIG AT HOME CASE ANALYSIS NehaS

Green Mountain Coffee Roaster’s Keurig Single Brew system is dominating the U.S. market with an overwhelming market share. Analysts expect sales of single-cup brewing systems to continue to grow in the U.S. and competitors are eyeing a piece of the pie. An analysis of Keurig’s current position, based on Michael E. Porters 5-Forces, highlights a number of key areas of opportunity and risk for the company. Handled correctly, the Keurig product line should continue its growth, however, a number of significant pitfalls threaten its dominance.

A recent primary research survey has found that 70% of occasional coffee drinkers view the Mr. Coffee brand as an inferior or budget coffee brewing device that does not make a superior cup of coffee (Appendix, Opinion survey). Brands such as Keurig, Cuisinart, and DeLonghi inspire more thoughts of quality coffee than Mr. Coffee. Other consumers are opting to spend several dollars per cup of coffee at coffee houses such as Starbucks, Caribou Coffee, Dunkin Donuts, and even McDonalds (Appendix, Opinion survey).

The “Coffee Wars – The Big Three: Starbucks, McDonald’s and Dunkin’ Donuts” article focuses on the company analysis of the Starbucks brand and how its main competitors, McDonald’s and Dunkin Donuts, has affected their brand and driven competition higher. Even though there are many companies trying to enter the specialty coffee market, these three companies own the majority of the market share. With Starbucks’ top quality and above average prices they hold a different market than the fast coffee/food market of Dunkin’ Donuts and Starbucks; yet the competitive moves Dunkin’ Donuts has made over the years in order to compete with Starbucks and surpass McDonald’s has driven competition up between all three companies. The competition has stiffened ever more in the past ten years due to the changing economy. This led to “the big three” to come up with different techniques to gain competitive advantage over the other. Although the competition between these companies is to gain most of the market share, consumers are still loyal to a certain brand; this makes it difficult to gain each other’s clientele. McDonald’s continues to appeal to customers who want value and speed, Dunkin’ Donuts focuses on the middle-class, while Starbucks a customer who desires a higher quality product along with being recognized for using the brand.

The alluring aroma of freshly brewed java is both tantalizing and calming to the senses, so much so, that most individuals are unable to fathom a morning or a day without a cup of fragrant, hot coffee in hand. Coffee is one of life’s little indulgences that have become a necessity for some, who find it increasing difficult to live without, as a result, Keurig created an innovative, and unique form of preparation. The Keurig machine makes it possible for a single serving of coffee, tea, hot chocolate, or water without the need to clean the machine in between its use. It eliminates the “stale-tasting” waste that results from the remnants of old coffee, which no coffee drinker desires, and it eradicates the need to clean the pot or brew basket, all this in less than a minute!

Sales from restaurants—including Starbucks, Dunkin' Donuts, and McDonald's, which carry premium brews—grew at a compound annual rate of 15.2% from 2001 to 2006, as supermarket sales rose only marginally. Activist investor Nelson Peltz is pressuring Kraft to divest slow-growing Maxwell House. But Kraft vows to stick with the $1 billion-a-year brand. Another worry: Only 37% of 18- to 24-year-olds drink coffee, reports the National Coffee Assn., vs. 60% of those 40 to 59 and 74% of folks over 60. (Crown, 2007)

Because of their substantial growth over two decades, they have spent a considerable amount of time defending their image. Their “clustering” strategy put many small coffee shops out of business and many consumers began to wonder if there really was a need

We are surrounded by many choices when we start are day, such as what we are going to wear, what we are going to eat, and where we are going to get our source of caffeine from to use to start the day. There are so many choices on where to get that caffeine from, outside coffee shops, an old fashioned coffee maker, french press, and lastly the newest invention, the Keurig machine. The Keurig machine itself was invented in 1990, with its first machine manufactured in the 2000’s. (Keurig website) It’s very challenging in a modern world like todays’ not to be drawn to this neat, and useful device. Looking at it, it can brew a cup of coffee with just the touch of a button in seconds. There isn’t a massive glass jar like an old-fashioned coffee maker would have, instead just enough room for any mug of choice. Firstly, what really is a Keurig? Well, according to the Keurig website, it is a beverage brewing system used for both commercial, and home use. Instead of usual coffee machines requiring a switch to flip to brew, and a coffee filter, and filling the glass with water, the Keurig allows a small portion called a “K-Cup” which is used to brew the coffee. The middle aged, and adult populations are highly targeted with this invention. The ad imposes that our lives can be easier with the touch of a button, and boom our source of coffee is delivered within seconds. The advertisement is adequately showing the easy steps one can take to brew a cup of coffee, tea,

To calculate the optimal the Keurig-cup price, we first considered the data from Case Exhibit 7B, to determine the total percentage of consumers who are willing to purchase at each of the price points.

In October Bunn, a leading commercial beverage equipment producer, launched its home version of its single-serve coffee machine called MyCafé. Unfortunately for Keurig, the MyCafé is the first to capitalize on the expiration of Keurig’s patent on

They have focused on building brand recognition and profitability by growing the business gaining assets to grow the company and products for greater customer satisfaction (About GMCR, 2004-2009). GMCR’s strategy to incorporate current large brands, such as Tully’s, Diedrich, and Keurig has helped to expand their customer base and satisfaction as well as the markets for their products (Phillips, 2011). Their focus on increasing their market shares in other companies will facilitate their expansion into new geographical markets and promote the brand. GMCR’s partnership with Keurig creates a larger consumer choice and the addition of agreements to create portion packs for the Keurig with companies such as Starbucks, Dunkin Donuts, and Newman’s Own helps set them apart from the competition (Invest in the Markets, 2011).

Geoff Herzog is the product manager for coffee development at Kraft Foods Canada. After reviewing successful results of single-serve coffee pod systems, he wondered whether it would be successful in other areas. It was July 6, 2004, and Herzog had just learned that Kraft Foods North America was planning an aggressive launch of coffee pods in the United States. He then had only a month to decide whether or not the company should proceed with a simultaneous launch in Canada, or await the U.S. results.

The successful market of Starbucks and other successful coffee houses has made it okay to spend $1.50 or more for a good quality coffee and even more for specialty drinks. Considering the trend in successful coffee houses and the cost of the drinks, it opened the door for Keurig to produce high quality low maintenance units for the home and office. Keurig conducted multiple market research polls to reach its price points, ensuring that once units are released they are something that customers will buy without hesitation. Price points were anywhere in the range of $199 to $299 (Cravens &

Keurig Inc has been founded on an amazing idea that coffee making systems that uses individual portion packs of freshly roasted and ground coffee with unique coffee maker designed to brew perfect cup of coffee at a time. At that time there are already established gourmet coffee houses like Starbucks, which is making coffee consumers to spend more money with an average of $ 1.50 or more for a cup of gourmet coffee. This change is consumer behavior created opportunity to Keurig to offer gourmet coffees by a single-cup in offices in 1998. Within a span of four years (1996-2000), Keurig have noticed sales increased by 40% in US at home coffee market. With these facts Keurig´s management got convinced, to develop an at home one-cup coffee brewer especially for gourmet coffee lovers.

As for other beverages, they should be in the same or lower price range compared to the specialty coffee.)

It is essential that Green Mountain’s negotiation succeed because the value proposition that comes along a new product like the portion pack system. Keurig is a start up coming looking to expand its business venture and GMCR central location is in the Northeast and they were also looking to expand the company’s geographic existence. With expansion ideas in mind as a common ground for both companies, it would be smart and beneficial for the companies to work towards this specific goal. Keurig would make it feasible for GMCR to sell the K-cups it will eventually produce in parts of the country they are not already connected to once the Keurig goes national. There is major room for them to grow and to be