It’s another version of the “razor blade” marketing metaphor – give away the coffee maker and make a killing on the beans.
Keurig upped the ante several years ago with its wondrous single-cup brewing machine. Besides requiring a degree in mechanical engineering to operate, the Keurig brewer needed more than just beans. Now, the consumer needed to purchase loads of environmentally unfriendly “K-Cups.”
Brewer = razor. K-Cups = blades. Green Mountain Coffee smelled profit, so in 2006 it acquired Keurig. Consumers were a little slow to catch on, but by 2010 Green Mountain’s stock price began doubling, tripling and quadrupling.
One big problem, though. The patent on the K-Cup had a near-term expiration – 2012. Everyone and his brother lined up to get into the business, giving us recent announcements like this:
“Kroger Co, the biggest U.S. supermarket chain, is planning to introduce store-branded single-serve coffee cups compatible with Green Mountain Coffee Roasters popular Keurig brewers…”
And an even bigger announcement, one we predicted way back in March 2010:
“Keurig’s patent expiration in a couple of years seems to be its lone weak spot. We wonder if the bean counters at Starbucks have circled that on the calendar.”
“Earlier this week, No. 1 coffee chain Starbucks said its stores will begin selling single-serve K-Cup coffee pods for Keurig brewers on June 12, months earlier than some on Wall Street had expected.”
Analysts tell us to fear not. That single-cup still represents less than 10% of coffee consumption, even though its growth has doubled each of the past three years.
We say – be afraid. It won’t take more than 12 months before the supply of these little plastic pods outstrips U.S. demand. Green Mountain’s stock has already collapsed. Everyone’s K-Cup prices will plummet. Margins will follow, as will industry consolidation. Another marketing goose slaughtered.
In the meantime, folks like Kroger will believe the single-cup future is one big arrow pointing up and to the right, and will come out with new flavors of brew every month.