Keurig Case Study

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.

There are different types of competition in the market for coffee. There are usually a multitude of coffee shops of different types and ownerships to supply for the highly concentrated demand. The most

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).

30 3.2.6. Five Forces Analysis ......................................................................................................................... 31 Diagram 3: Five Competitive Forces in the Coffee Industry .................................................................. 32 3.2.6.1. Threat of New Entrants .................................................................................................................. 32

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!

Although the company is known for their coffee, they also drive a great portion of their revenue from baked good sales, which differs greatly from the Keurig Green Mountain strategy. Dunkin does compete against Dunkin intensely in the New England market, as both companies were founded and based in the area.

Keurig should launch the Keurig-Cup in the at-home market and continue to use the K-Cup in the commercial market. The reasons of separating these two series are listed as follows:

In recent months many new single-serve coffee brewers have come to market in the United States. These new competitors are offering consumers many new choices and variations of a single-serve coffee brewers. In turn, this is stepping up pressure Keurig to keep up with its competitors and the markets demand. The three competitors that pose the biggest threat to Keurig are Bunn’s MyCafé unit, Starbucks’ Verismo unit, and the Esio beverage system which is backed by Wal-Mart.

Green Mountain Coffee Roasters, Inc. (GMCR) was founded in 1981 as a small café and combined with Keurig in 2006 (About GMCR, 2004-2009). GMCR produces specialty coffee and coffee makers; Keurig is the maker of a single cup coffee maker as well as specialty teas and coffees. Keurig was founded in 1998 on the concept that one should be able to make coffee one cup at a time rather than one pot at a time (Coffee.org, unknown). Today, GMCR has acquired and merged with several specialty coffee brewers and Keurig

There are many sellers in the market heating up pricing competition. Competitors like McDonald’s, Dunkin Donuts, Peet’s Coffee and other specialty coffee companies incentivize price wars. Furthermore, coffee’s demand is elastic which makes it difficult to increase prices without greatly reducing the demand. This makes differentiation and positioning very important. Also, it is easy for customers to switch from coffee vendors. Whichever company is most convenient for the customer will likely win the business. Competition is a top priority in the industry.

The system allows consumers to buy a variety of coffee and make a cup of coffee that has the quality like the one you would buy in a gourmet coffee house for upwards of $3 to $5. Based on the surveys and focus groups that had been conducted people were looking for convenience, minimal clean-up, and great taste. Keurig made its decision to promote the system based on those factors and with units succeeding in local businesses now was the time to strike, while the “iron is hot”, a large percentage of survey takers said they would gladly buy the units that were proposed based on the information they were given.

Keurig´s started approaching venture capital for funds to make their concept to a reality of single cup brewing system and their first target was coffee service market, the B2000 which was launched in 1998.

Hence, even without the two cup system that would have introduced a physical fence, the “products” offered to the two markets are not equivalent. Therefore, we do not believe that the new Keurig-Cup is a necessary fence to price discriminate between commercial and residential markets.

McDonald’s, in addition to several other fast food vendors like Burger King, Dunkin’ Donuts, Panera Bread and independent coffee houses remain Starbuck’s toughest competition (Adamy). McDonald’s began introducing its espresso beverage products in 2001, and offers its product at a price between two and three dollars to compete with Starbucks between three and four dollars a cup coffee (Adamy). Similarly, Dunkin’ Donuts has recently implemented a plan to expand nationally (Adamy). On average, Dunkin’ Donuts coffee products cost approximately 20 percent less than Starbucks’ (Ball and Leung). In response, Starbucks has announced recent

Starbucks faces competition from variety of small-scale specialty coffee chains, such as Caribou Coffee, Peet’s Coffee and Tea, Dunkin Donuts, and thousands of independent specialty coffee shops. Each of them applies different strategies to differentiate itself from Starbucks; some of them deliver highly personalized service.