silo summaries summary of findings · dropping k-cup prices an estimated 10% to 20%. generics are...
TRANSCRIPT
GMCR’s K-Cup to Lose Share Based on Generics’ Price; Competitor Quality a Question
1 Ferry Building Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
REPORT
September 21, 2012 Companies: BBBY, DNKN, GMCR, KFT, KR, NESN:VX, SBUX, SJM, SVU, SWY, THS
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Reverdy Johnson, [email protected], 415.677.5801
Summary of Findings
Eighteen of 24 sources believe Green Mountain Coffee Roasters Inc.’s
(GMCR) K-Cups will lose market share as several patents expire and
new competitors emerge with generic K-Cups, though some expect it to
be short-term. Seven sources did not comment.
Customers are eager to try generic K-Cups and say they will switch to
the K-Cup knockoffs if the price is low enough and the quality is on par
with GMCR products, but opinions vary on whether competitors will
meet those standards.
Thirteen sources said K-Cup sales have increased year to year, with the
majority reporting a 10% increase. Three said sales are down and four
said sales are flat.
Four sources believe GMCR will respond to lower-priced competitors by
dropping K-Cup prices an estimated 10% to 20%. Generics are
expected to be 20% to 30% cheaper than K-Cups.
Green Mountain introduced a low-priced coffee option with its Diedrich
K-Cup line, but sources called it mediocre at best.
Online distributors do not expect generics to cut into K-Cup sales,
though commercial suppliers said K-Cup sales will be negatively
affected. Both silos are affected by exclusive agreements with GMCR
that ban them from carrying competitor products.
Vue sales have been disappointing and remain insignificant.
GMCR’s Share of
K-Cup Market After
Patent Expiration
Current K-Cup
Y-Y Sales
Expected K-Cup
Prices in
Response to
Losing Patent
Industry
Specialists
Commercial
Suppliers
Online
Distributors
Competitor
N/A N/A
Big Box/ Dept.
Stores N/A
Grocery Stores
N/A
Customers
N/A
Silo Summaries
1) INDUSTRY SPECIALISTS Two of four sources said K-Cup market share will decline
with the introduction of rival products, while two sources
said GMCR will not have a noticeable decrease in K-Cup
sales given customer loyalty. Three sources expect GMCR
to lower prices, with one anticipating a 20% drop in order
to compete.
2) COMMERCIAL SUPPLIERS Four sources said the introduction of generic coffee pods
will hurt K-Cup sales, with one source expecting a 10%
decrease. Two sources are upset that their exclusive
agreements with GMCR prohibit them from carrying generic
K-Cups as they expect to lose an opportunity to meet
customer demand.
3) ONLINE DISTRIBUTORS Four sources expect competitor coffee pods to have
minimal impact on K-Cup sales. Three sources said their K-
Cup sales have increased 10% from a year ago. Generic K-
Cups will struggle to match GMCR’s brand awareness,
quality and loyal customers. Generic K-Cups will deliver
subpar quality and taste, based on the competing products
they have seen so far.
4) COMPETITOR The source said sales of his competitor generic K-Cups are
increasing and distribution is growing. His coffee pods are
20% to 30% cheaper than K-Cups.
5) BIG BOX/DEPARTMENT STORES Three sources expect generic K-Cups to take share from
GMCR’s K-Cups, provided the price is low enough and the
quality high enough. Three of the six sources said GMCR K-
Cup sales are not growing at their store.
6) GROCERY STORES Two sources said competition will cut into K-Cup purchases
as customers will prioritize price. High enough quality will
keep them from switching back to K-Cups. All four sources
said K-Cup sales have increased between 5% and 10%
year to year.
7) CUSTOMERS Seven of eight sources will try generic K-Cups as they are
eager to save money but are leery of a potential drop in
quality. Five of the sources have increased purchases.
8) SURVEY OF GMCR CUSTOMERS An overwhelming majority of Keurig owners are willing to
try K-Cup competitors, and almost as many are open-
minded about switching brands.
Research Question:
With several K-Cup patents expiring, will Green Mountain Coffee experience a
significant decrease in sales as competition heats up?
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
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Background
Blueshift Research’s January report on Green Mountain found sources more guarded in their tone and outlook on Green
Mountain than in Blueshift’s previous five reports over the last two years. Our April report found that GMCR’s Vue will not
entice Keurig owners to upgrade, citing higher price and lack of compatibility with K-Cups, though it may attract customers
new to the single-serve market. K-Cups’ patent expiration was named as the biggest threat to GMCR. One commercial
supplier source said at least five roasters anticipating patent expiration have purchased K-Cup assembly machines and that
Keurig’s best response would be to lower K-Cup prices.
CURRENT RESEARCH In this next study, Blueshift assessed the effect of the K-Cup patent expiration and rise of competitor K-Cup products.
Blueshift employed its pattern mining approach to establish and interview sources in nine independent silos:
1) Industry Specialists (4)
2) Commercial Suppliers (4)
3) Online Distributors (4)
4) Competitor (1)
5) Big Box/Department Stores (6)
6) Grocery Stores (4)
7) Customers (8)
8) Survey of GMCR Customers (67)
9) Secondary Sources (7)
Blueshift interviewed 31 primary sources, including nine repeat sources, and identified seven of the most relevant secondary
sources focused on the potential for a smaller-than-anticipated impact of the expiring patents; warnings about generic K-Cups
not working safely in Keurig brewers; trademarking the name of its highly-anticipated espresso machine; consumer
enthusiasm over less expensive K-Cups and generic pods after patents expire; entry of grocery chains and packaging
suppliers into the competitive K-Cup market; and Green Mountain’s plans for its new line of health-related drinks.
Next Steps
Blueshift’s next report will focus on uptake of competitor K-Cups in the grocery channel, the big-box stores and online and
commercial suppliers. We will assess the effect this has on K-Cup sales and prices. We will look specifically at grocery stores
Kroger Co. (KR), Supervalu Inc. (SVU) and Safeway Inc. (SWY) to observe how their generic brand K-Cups are faring and how
they compete with K-Cups on the same shelf. We will revisit the online distributors and commercial suppliers to learn if any
are tempted to break their exclusive agreements with Green Mountain and what additional steps Green Mountain is taking to
secure its share.
Silos
1) INDUSTRY SPECIALISTS Two of four sources said K-Cup market share will decline with the introduction of rival products, while two sources said Green
Mountain will not have a noticeable decrease in K-Cup sales given customer loyalty. These two sources believe customers will
experiment with lower-priced options but will return to K-Cups based on quality and familiarity. Three sources expect Green
Mountain to lower prices, with one anticipating a 20% drop in order to compete. One source said K-Cup sales growth has
slowed compared to its growth rate the last five years. All the sources said the Vue is too expensive and will only attract new
customers because Keurig owners are not trading up.
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
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Coffee researcher in Canada; repeat source
Green Mountain will maintain market share or decline as increasing competition will curtail growth from this point. Green
Mountain will need to reduce its prices by 20% and suffer reduced profit margins. There is also growing concern about
the environmental issue of the plastic cups. They are not recyclable, and they contain byproducts that are not considered
safe. Vue was Green Mountain’s answer to the environmental issue, but it is expensive and its pods are difficult to
recycle. As a result, the brewer hasn’t done as well as expected.
“There is no reason now to be optimistic about Green Mountain
growing. The company will stay the same or drop. Three or four years
ago, I was bullish about K-Cups. They had a wonderful ride.”
“The patent expiration will have a huge impact on K-Cups themselves. I
can’t see it working any other way. Competitors will charge less to get
into the market. It will be a logical price competition. It will all get down
to pricing and marketing.”
“It doesn’t matter to the buyer where they get the K-Cups from. K-Cups
will become a commodity. But there will always be buyers loyal to
Green Mountain.”
“Green Mountain should reduce prices by 20% on K-Cups and Keurig
machines.”
“There will be a lot of K-Cup competitors making coffee pods. And there
will be new single-serve coffee machines, espresso machines, that will
increase competition for Keurig. Bosch [Ltd./BOM:500530] is testing a
new machine.”
“K-Cup numbers have been growing, but in the past year, I think they’ve plateaued a bit.”
“If the economy continues to deteriorate, people will notice the high price of K-Cup coffee and will notice that it
is crazy to pay these prices.”
“I have two major concerns about Green Mountain: (1) the patent expiration competition and the need to lower
prices with reduced margins and (2) the un-discussed aspect of K-Cup’s environmental problem."
“There will be a danger of Kraft or some other company who wants coffee market shares, to enter the new K-
Cup market. They have the money for the technology, and they could make a huge dent in the market.”
“Green Mountain’s K-Cups come at a high cost. People are concerned about waste and cost. K-Cups are a very
expensive way to make coffee, and consumers pay twice as much as they need to.”
“Vue is Green Mountain’s recyclable answer. At least the company is trying to address the issue. But you can’t
use the Vue pods in the Keurig. The Vue pods are too inconvenient to recycle. You have the hot grounds, and
you have to wait for them to cool.”
“Green Mountain also needed a machine to make lattes and cappuccinos. They needed to come out with a
brewer that did not look boring.”
“It is harder to use the Vue than the Keurig, and people who drink this type of coffee are seeking convenience.”
“There is another problem, but it might be minor. People are growing concerned about so much plastic. At first
they ignored the plastic, heated cups, but now they are questioning the chemicals in the pods. What about BPA?
People are asking me about that all the time. There's also phthalates. That is an issue. It has been banned in
some states and in Denmark. These chemicals are very disruptive to the body. BPA is used to make plastic more
rigid, but it bleaches out of plastic. There are small amounts of BPA in 90% of all people in North America. It is a
growing concern. Manufacturers should be looking at what they can use as a plastic-free coffee maker."
“The seal? Good luck with that. It may make a difference to some, but not many.”
Quality coffee taster on the East Coast
Green Mountain will lower K-Cup prices, and sales will be steady for about six months. After that time, market share will
start to drop off, although the source could not yet quantify the decline. Consumers will be attracted to less expensive K-
Cups, but only if the quality is up to that of Green Mountain. In addition, the Keurig machines break down, which may
encourage consumers to look at other brands. The Vue is Green Mountain’s environmental answer to K-Cup, but the Vue
is too expensive to have a lot of sales. K-Cup competitors may include Maximus Coffee Group.
“The patent expiration won’t dramatically change the numbers for Green Mountain. The next six months will be
steady for them, then it will start to drop off, but I can’t predict by how much.”
The patent expiration will have
a huge impact on K-Cups
themselves. I can’t see it
working any other way.
Competitors will charge less to
get into the market. It will be a
logical price competition. It will
all get down to pricing and
marketing.
Coffee Researcher, Canada
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
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“Green Mountain’s price will have to come down to hedge off
competitors. There will be somewhat of a shift to [the new cups], but
this will depend on the quality of the other products. If it is terrible,
consumers will shift back to Green Mountain.”
“Right now, Green Mountain has 85% of the market share for single
serve in the United States. It helped when they purchased all licensing
rights.”
“If you measure K-Cup sales across the board, they have grown slightly
this past year, but not as fast as the past five years.”
“The Keurig does break down. Just look at Green Mountain’s financial
disclosures. They have overly exaggerated warranty repair costs on their
balance sheets, and they’ve adjusted the prices on these sheets.”
“The Vue was Green Mountain’s response to the environmental shift.
They developed this new system with new patents. They were looking
ahead, possibly hoping to shift over millions of K-Cup users.”
“The Vue won’t have as much popularity as the Keurig. It is priced too high. People unhappy with the Keurig may
try the Vue.”
“I don’t fault Green Mountain management. They have been brilliant at buying up lines. They knew the gravy
train would come to an end. Three-plus years ago, they knew the patent expiration was coming down the pike.
The question was, ‘How do you maintain a monopoly market share?’”
“It is possible that Kroger and Maximus, out of Houston, Texas, will ramp up. But they need to have initial
upfront capital for the equipment. At $25 or $30 a pound, there should be good margins and good competition.”
“K-Cup is environmentally irresponsible. There is some disconnect from the company, where they’ve been and
where they are going.”
President of online coffee review guide, repeat source
Green Mountain has a good future, even though it faces strong competition. The company has many loyal customers, and
they offer great benefits like a coffee club that gives members a 15% discount on K-Cups. At first, people will buy the new
discounted cups just to try them out, but eventually loyal consumers will return to K-Cups. Green Mountain has good
quality control. Keurig currently has 75% to 80% of the market, although it faces tough competition, especially from
Tassimo, which ranks second in the market, and Nespresso. The Vue is a good environmental move for Green Mountain,
but it is expensive. The patent expiration will be a bigger game changer for online retailers because more and more
people are buying online.
“Green Mountain will have competition, but it will be hard to compete
with Green Mountain.”
“Other companies can’t wait to jump into the K-Cup market. They will
have to provide high-quality packaging and low pricing. Green Mountain
will have to reduce their price on K-Cups to keep up.”
“Green Mountain has a lot of loyal customers. They offer great benefits
and good discounts. They have had a coffee club for several years.
Members can get 15% off on K-Cups, which is a good deal. I’m sure
they will offer more coupons.”
“People will start by buying some less expensive K-Cups first, just to try
them out. They won’t go back to drip coffee because they are already
spoiled. But they won’t forget Green Mountain.”
“I haven’t tried the alternative K-Cups. I read reviews on Amazon, and it
seems that there are quality problems. Green Mountain has good quality and good control.”
"Keurig is at the top. It has 75% to 80% of the machine market. I’m not sure if Keurig will stay up there.”
“Tassimo ranks second. It is one of the best machines on the market, probably better than Keurig. The Tassimo
makes a blend espresso, not a real espresso. It’s just a different process.”
“There are a lot of single-serve coffee makers on the market today, and the price will be dropped. Nespresso is a
good Keurig competitor.”
“The Vue was a good move environmentally for Green Mountain.”
Green Mountain’s price will
have to come down to hedge
off competitors. There will be
somewhat of a shift to [the new
cups], but this will depend on
the quality of the other
products. If it is terrible,
consumers will shift back to
Green Mountain.
Quality Coffee Taster, East Coast
Other companies can’t wait to
jump into the K-Cup market.
They will have to provide high-
quality packaging and low
pricing. Green Mountain will
have to reduce their price on K-
Cups to keep up.
President, Online Coffee Review Guide
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
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“The new Vue is very pricey, but it has a lot of good features. It can make cappuccino. But there are a lot of
machines on the market today, and the Vue hasn’t been such a success.”
“The patent expiration will be a bigger game changer for online sales. More and more people are buying online,
and with Amazon [Inc./AMZN], you can buy four packs and get free shipping. Online is just easier. Stores have to
deal with returns more than online sellers.”
“I owned a Keurig that broke, and Green Mountain honored the rewards. They didn’t even know who I was. I’d
like to hear that other companies work as well.”
“I haven’t heard of any Green Mountain distribution problems in a while.”
Managing director of commodities warehouse on East Coast
Green Mountain has a lot of loyal consumers who will stick with them. Competitors will get some of the market share, but
it won’t be significant. Local roasters, including Farmer Brothers in Los Angeles, will be the strongest competitors. Green
Mountain should lower prices to compete. Keurig will face competition as the home-gadget market gains popularity. New
consumers will buy the Vue because it is fancier and sleeker.
“I haven’t seen any current impact on the flow of coffee to Green Mountain. No change so far. I’m not so sure
there will be a rapid decline, if at all. Consumers like Green Mountain coffee and its convenience. They will stick
with Green Mountain for a while. Green Mountain has loyal clients.”
“Some competitors might get some of the market share.”
“Some unauthorized K-Cups will feel it’s an opportunity. There are strong loyalties in coffee despite the price. If
you are a Dunkin’ Donuts lover, you’ll buy Dunkin’ Donuts.”
“I hear that a lot of people are in the process of purchasing equipment to make K-Cups. These would be the
regional roasters, such as Farmer Brothers in Los Angeles. But you can’t make a direct correlation of putting
coffee in a K-Cup and competing with Green Mountain.”
“Green Mountain could be priced more competitively. It would be a wise move.”
“The Vue is probably a new-purchase client. You won’t see people with Keurig buy a Vue until they have to.
People may buy the Vue because it is sleeker and fancier-looking.”
“The vitamin-enhanced drinks aren’t my cup of tea, but it doesn’t surprise me that Green Mountain is trying to
cross over to energy and health drinks. This is not a big growth area, but if it ups the market share a bit, why
not?”
“The seal can’t hurt. Green Mountain’s clients will stick with them, and the seal makes it extremely clear. But I
don’t think it will bring in new clients.”
2) COMMERCIAL SUPPLIERS Four sources said the introduction of generic coffee pods will hurt K-Cup sales, with one source expecting a 10% decrease
that will affect retail sales more than office and commercial sales. Two sources are upset that their exclusive agreements with
Green Mountain prohibit them from carrying generic K-Cups as they expect to lose an opportunity to meet customer demand.
Another source is already carrying knockoffs that are priced 30% cheaper than K-Cups. One source believes K-Cup prices will
have to fall to compete. Two sources said Green Mountain’s lower-priced Diedrich K-Cup offering is mediocre at best. Two
sources said K-Cup sales have decreased year to year, one said sales are flat and another said sales are up 5% to 10%. Two
sources said Keurig sales have fallen off, while another said Keurig sales are increasing. All the sources said Vue sales are
insignificant.
President of commercial supplier in the Northeast; repeat source
Commercial K-Cup purchases have been slowing down in the past year as margins on K-Cups have been too thin, and
suppliers with Green Mountain exclusive agreements will lose customers to K-Cup knockoffs after the patent expiration.
Suppliers have shifted to other technologies such as Mars. Inc.’s Flavia Coffee Brewers in order to get around the
exclusive agreement they have with Green Mountain that prevents them from selling knock-off K-Cups. In addition,
offices are purchasing fewer Keurig machines and K-Cups because employees are stealing the pods for home
consumption. The Vue was designed to meet the higher end of the market, but the trend is toward lower pricing now.
Green Mountain’s newly introduced lower-end Diedrich brand is poor quality, and it will just encourage more bootleg
products. Flavia has limitations on quality, and the market is ripe for a new competitor with Keurig-quality brewing, good
coffee and lower pricing.
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
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“I definitely see a bit of a slowdown in K-Cup purchases in the past
year. It is not significant, but it is slowing down. This has nothing to do
with the impending patent expiration. That has not hit the business yet.
The slowdown is a combination of alternative locations and technology
for commercial suppliers to buy from. Office commercial suppliers have
shifted technology to other things.”
“Right now, one-third of our business is K-Cups, but that has slowly,
slowly been declining. We have grown with the technology, and our
customers are shifting away from K-Cups. To take away the risk of
violating our Green Mountain agreement, we are buying equipment
from other sources and working within that technology.”
“The floodgates will open with the K-Cup knockoffs in a few weeks. All
products will be made available at a lower cost. Many office suppliers
will look to work with pirated K-Cups.”
“We have to protect our business by shifting away from K-Cups. In
wholesale and office pricing, the K-Cup margins were too thin. It is
dangerous to put K-Cups in the office and be profitable. It is cheaper
for the customer to buy K-Cups elsewhere, such as Bed Bath & Beyond. This has been a growing problem the
last three years. Year after year, it has been a heightened issue.”
“Many office customers want K-Cups out of the office. Employees are stealing the pods and taking them home,
and that is a problem.”
“For years, Keurig was our best-selling machine, and we couldn't get it fast enough. But the demand has slowed,
and now we are just maintaining.”
“There are many competitors out there, just waiting. Rogers Family, Safeway and other supermarket retailers.
Will the knockoffs be sold in grocery stores or retail? People are waiting to see what will happen. There are a lot
of question marks now with the patent expiration. In the office supply, we don’t know what products will be
made available to us.”
“We have an agreement with Green Mountain not to sell pirated K-Cups, even after patent expiration. This
applies to all authorized Green Mountain distributors. The agreement is designed to protect K-Cups. We can’t
risk our agreement and violate the rules. But if all products are made available at a lower cost, customers will
buy K-Cups from other folks. We need to protect our business by shifting away from K-Cups.”
“We can’t afford to cross Green Mountain, but offices will buy into new technologies to get around the
agreement. For office coffee, the new technology in pod brewers is the Flavia Brewers. Flavia is growing, but not
on a grand scale. We get feedback from the customers, and the challenge with Flavia is quality. If they can take
care of quality, that would ensure their growth.”
"Green Mountain has introduced a line of value K-Cups under the Diedrich brand. It’s a lower cost pod with four
selections. We have tested them, and the quality is significantly inferior. Green Mountain cut too many corners.
Green Mountain misspoke on the way they are dealing with this
product. If the quality is not as good as the bootleg K-Cup, there will just
be more of a push to buy the bootleg product.”
"The market is ripe right now for new manufacturers to enter, possibly
with a major brand name, in the office coffee service and wholesale
markets. We need an alternative to the Keurig that has equal product
quality and possibly a lower price point.”
"We don’t carry the Vue at this time. It has just been made available to
us, but there has been little interest. Carrying the Vue may be a struggle
because it costs 10% more on average. Right now, people don’t want to
spend more. They are looking at spending less.”
“Green Mountain tried launching a higher-priced option with the Vue,
but I’m not sure how it is working in retail. Higher-priced products will
struggle in today’s market.”
“The Vue is more of a niche product for high-profile customers, not
mainstream, unless Green Mountain brings the prices down. It may
work for companies going green, with green cups and green plates. But
Right now, one-third of our
business is K-Cups, but that
has slowly, slowly been
declining. … The floodgates will
open with the K-Cup knockoffs
in a few weeks. All products will
be made available at a lower
cost. Many office suppliers will
look to work with pirated K-
Cups.
President, Commercial Supplier
Northeast
We have tested [Diedrich K-
Cups], and the quality is
significantly inferior. Green
Mountain cut too many
corners. Green Mountain
misspoke on the way they are
dealing with this product. If the
quality is not as good as the
bootleg K-Cup, there will just be
more of a push to buy the
bootleg product.
President, Commercial Supplier
Northeast
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
7
it is all about alternatives. If something is two times more expensive, companies will note this and may not want
to pay for it.”
Vice president and co-founder of commercial supplier in the Northeast, repeat source
Green Mountain may lose 10% of sales with the patent expiration as many competitors enter the market. Retail sales will
be more affected than commercial sales. To counter the competition, Green Mountain has introduced a lower-priced
value line, Diedrich Coffee, and created a Keurig stamp of approval for authorized products, though consumers are likely
to ignore this seal. Keurig sales will increase as a result of the knock-off K-Cups. He suspects Keurig may invalidate
warranties if consumers use unauthorized pods with their Keurig machines. The new health drinks will have no effect on
business as others have been unsuccessful in the past.
“Up to now, our K-Cup sales have been flat. So has the rest of our business. There is a lot of competition in the
office line. We offer as many options as possible. However, as a Green Mountain authorized dealer, I’m stuck
between a rock and a hard place. I’m not panicking, but the patent expiration may hurt me as well.”
“I don’t think office sales will be as affected as the retail line, which will definitely be affected by sales at Costco
[Wholesale Corp./COST], Wal-Mart [Stores Inc./WMT], and Kroger.”
“Green Mountain may be affected by as much as 10% when patents
expire. I’ve tried some of the unauthorized K-Cups coming out. The
ones that are cheap are terrible, and the ones that are fairly priced
have a moderate taste. I’m curious what will happen this month.”
“The next quarter will be tumultuous. It will take a while for the playing
field to level out. We are in uncharted territories here.”
“Right now, Green Mountain is not acknowledging the patent
expiration. Their first reaction won’t be a reaction. They will claim this is
who they’ve been for 14 years. A company you can trust. They’ve done
everything for the consumer, and they always keep the consumer in
mind.”
“Green Mountain has not had a viable competitor yet. A lot of unnamed
companies will make their own K-Cups, but in the end Green Mountain
will win because people need Keurig machines to brew the cups.
Nothing will knock Green Mountain off its perch just yet.”
“Keurig will maintain Green Mountain as a player. Keurig will keep growing. They have more products now.
Machines only last a few years.”
“Green Mountain can get so arrogant. They thought they could charge anything. They were so big, they thought
competition couldn’t hurt them. They have laughed in the face of all competitors and allowed them in:
Starbucks, [Dunkin Brands Group Inc.’s/DNKN] Dunkin’ Donuts. Green Mountain is worried a little bit now, but
not panicking. They have a long way to fall.”
“Green Mountain has been proactive in anticipating competitive pricing. Their Diedrich [Coffee] label line is
value-priced. I’ve tried it and it is very typical. It’s OK. That brand can compete with the competitive K-Cup
pricing.”
“To counter and redo their market campaign, Green Mountain will introduce a Keurig seal or stamp of approval.
The Keurig-brewed stamp will be on every machine and cup.”
“I bet Keurig will not honor warranties if you are not using the real pods. They will claim that the unauthorized
pods will cause the machine to malfunction. There will be a campaign, and they will ask the consumer what
brand of coffee they are using.”
“The Vue is very pricey. It has a limited line of products compared to 200 K-Cups. Green Mountain is now saying
it is their high-end, programmable machine. The Vue office coffee-service line is new and won’t make a big
impact. Keurig has tied up the office.”
“Green Mountain is late in coming out with their [Luigi] Lavazza [SpA] Italian brewer. It is slow in getting out, and
it may be late.”
“[Kraft Foods Inc.’s/KFT] Tassimo and others are way behind. They haven’t penetrated the market aggressively.
We do market them and others and have had some success, but this is very much a Keurig market.”
Green Mountain may be
affected by as much as 10%
when patents expire. I’ve tried
some of the unauthorized K-
Cups coming out. The ones that
are cheap are terrible, and the
ones that are fairly priced have
a moderate taste.
Vice President & Co-founder
Commercial Supplier, Northeast
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
8
CEO of commercial supplier in the Northeast; repeat source
Competition stemming from patent expiration will be disastrous for Green Mountain. Many competitors already have
unauthorized K-Cups on the market, which are priced 30% to 40% lower than Green Mountain’s product. Green Mountain
will have to lower its prices to maintain market share. Keurig and Vue machines are not selling. Margins were too low on
the Keurig, and suppliers have had to raise prices. The Vue machines are expensive, and its sales are off. Green
Mountain management will need to change company culture in order to overcome the patent expiration fallout.
Consumers still ask for K-Cups, but this vendor has stopped promoting them until the dust settles. J.M. Smucker Co.’s
(SJM) Folgers could be a sleeper for Green Mountain.
“It will be disastrous for Green Mountain. They are arrogant. Not really greedy, but they have isolated
themselves. The guys weren’t smart enough to understand expiration dates. Even years ago the Green Mountain
guys were telling us it didn’t matter, and this has gotten worse since 2009, when they started selling in the big-
box stores. Green Mountain turned its backs on the smaller distributors that got them started. Green Mountain
bought up all the suppliers and created a monopoly. They thought they could do it fast enough, but they
couldn’t.”
“Green Mountain has to lower their price and fight like dogs and cats
really soon. This month.”
“Long-term, the competition caused by the patent expiration is good for
us and good for the consumer. Good for us because we don’t have
exclusive rights. Good for the consumer because of lower prices.
Estimates are that the new K-Cups will be priced 30% to 40% less than
Green Mountain K-Cups. We have taken on six or seven new vendors
already, and our cost will come in 30% below.”
“There are so many independents building pod machines today.
Supervalu is coming out with a new bag; someone else is in Atlanta.
The independents have already come out. If we have more suppliers,
there will be a more level playing field, and everyone will make more
money.”
“People are still asking for K-Cups, but we are not pushing the product
anymore. We will not promote K-Cups until it plays out. At some point, we may not sell them anymore.”
“Our sales on Keurig machines are down. We just raised our margins, but if we can’t make money, we aren’t
selling it. The Keurig machines are better today; they are the best-selling of the pod machines, but we don’t sell
many of them.”
“K-Cups still have a shot. Folgers could be that sleeper out there that rocks. They could be very strong in this
market.”
“People are not asking for the Vue. We have sold some, but the sales are way off. I’m not sure what consumers
are thinking about the Vue. We tried, but couldn’t sell it.”
“Green Mountain overstuffed the market. Now it is such a mess.”
“Green Mountain has a good, solid product. But the people running the company are bad news. Green Mountain
needs to have a complete culture change.”
“I’m wondering what the next holiday will look like. It may be fine for Bed Bath & Beyond if they are keyed into
what is happening. The big-box guys may be loading up now. I know that the supermarkets are loading up.”
President of a distribution company catering to the Northeast; repeat source
This source is worried about the patent expiration on K-Cups as his company is contractually prohibited by Green
Mountain from selling competing products. Many competitors have already approached him about selling products
similar to the K-Cup, and he said they are ready to go as soon as Green Mountain’s patents expire. But he cannot sell
them and is concerned other companies will poach from his business. He also said K-Cup sales are up 5% to 10% from a
year ago.
“We have not seen any impact so far, but the patent expiration is a big question mark in our industry.”
“K-Cups still seem to have the dominate market share in retail stores, based on shelf space.”
“K-Cup sales are up about 10% from last year.”
“Competitors say they are ready to go after the patents expire.”
“We’ll stay with Green Mountain. For now, we have to. About 10% of our business comes from K-Cups. I don’t
think there will be a major change in that percentage.”
Estimates are that the new K-
Cups will be priced 30% to 40%
less than Green Mountain K-
Cups. We have taken on six or
seven new vendors already,
and our cost will come in 30%
below.
CEO, Commercial Supplier
Northeast
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
9
“We’re concerned about the patent expirations because under our licensing agreement with Green Mountain
we’re barred from selling non-licensed K-Cups to our customers with Keurig machines, so we’re concerned
about people poaching our accounts.”
“We’ve been approached by competitors selling similar products, but
we cannot carry them. The pricing is below what Green Mountain is
selling now, but Green Mountain is responding with a lower-priced line
they call Diedrich.”
“Green Mountain has been having some problems with shipping in the
last month or so. Our inventory has been erratic as a result. They
changed their distribution system and the new center is causing some
bottlenecks.”
“Mother Parkers is a Canadian company with the Brown Gold and
Martinson brands. They are the biggest competitor to K-Cups in our
segment.”
“Most of our Keurig equipment is rented or loaned to our customers.
There is strong demand. That hasn’t changed in the last few years. In
fact, it’s growing.”
“More competition for K-Cups could result in more Keurig sales if it
brought down the price of the machines.”
“The Vue is very similar to the Keurig, but it’s more flexible in how much coffee goes into the packet and how it’s
brewed. If we start getting requests for the Vue, we’ll carry it. Haven’t seen any interest. I don’t know about
Starbucks’ Verismo.”
3) ONLINE DISTRIBUTORS Four sources expect competitor coffee pods to have minimal impact on K-Cup sales. Three of the sources have exclusive
agreements with Green Mountain, which restricts them from selling rival products, and will not risk their relationship with
Green Mountain. Three sources said their K-Cup sales have increased 10% from a year ago, while the fourth source quantifies
the sales increase at 25% to 30%. One source attributes the increased sales figures to a 20% price increase. No one has
experienced a decrease in the price of K-Cups. Generic K-Cups will struggle to match Green Mountain’s brand awareness,
quality product and loyal customers. Sources said generic K-Cups will deliver subpar quality and taste, based on the
competing products they have seen so far, and will not be cheap enough to motivate customers to switch from K-Cups. Two
sources said they have been approached by multiple competitors to carry their products. One source said knock-off pods are
priced at 15% less than K-Cups but contends that Green Mountain’s low-priced Diedrich K-Cups are actually less expensive
than its competitors. Keurig sales are expected to climb as a result of the increased volume of coffee pods compatible with
the brewer. Vue sales and demand remain insignificant.
Residential sales representative, East Coast coffee company; repeat source
K-Cup sales are up 25% over last year and continue to thrive because they represent such a well-known brand. Prices on
K-Cups have not decreased as a result of expiring patents, and the distributor plans to continue emphasizing K-Cups
despite an expected increase in competition. Keurig sales are expected to increase with the advent of generic coffee
pods. Vue packs and brewers are not significant.
“K-Cup sales are up 25% to 30% over last year.”
“Green Mountain has the advantage of being a well-known brand, which is tantamount to success.”
“It’s only two patents out of 37 that are expiring. They are also looking
to expand into new markets with new stuff they’re working on.”
“Green Mountain’s biggest competitor would be [Nestlé
S.A.’s/NESN:VX] Nespresso capsules.”
“Green Mountain is not restricting us from selling competitor’s K-
Cups.”
“We’re not seeing any price drop on K-Cups. They don’t need to.”
“We will stick with K-Cups.”
“K-Cup inventory is good. Most of the time we can get what we need.”
Green Mountain has been
having some problems with
shipping in the last month or
so. Our inventory has been
erratic as a result. They
changed their distribution
system and the new center is
causing some bottlenecks.
President, Distribution Company
Northeast
We’re not seeing any price drop
on K-Cups. They don’t need to.
… We will stick with K-Cups.
Residential Sales Representative
East Coast Coffee Company
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
10
“We do pretty well selling Keurigs. Most of what we sell is espresso machines, but the Keurigs are selling better
this year than last year. I think increased competition for K-Cups will only increase Keurig sales.”
“Vue pack sales are doing okay, but nowhere near to what Nespresso capsules are doing. We’re selling maybe
twice as many of those.”
“I really don’t know how many customers buying Vue are upgrading from Keurig. It’s a different product. The
interesting thing is to see if Keurig is going to get into espresso in a big way, and they are working on that with
Starbucks.”
“Our best-selling single-serve machine is the Nespresso.”
“[Starbucks Corp.’s/SBUX] Verismo is selling OK, but there’s no impact on Keurig sales that we’ve seen.”
“There are always competitors out there with different stuff. The products, like Starbucks’ Verismo machines,
are a little bit different. And they are being met with limited amounts of success. They have to talk people into
buying into their program, their equipment, all that stuff.”
Sales representative for an online distributor in the Northeast; repeat source
Her company’s K-Cup sales are up 10% percent this year compared with 2011. There will no doubt be a spike in
competition for the single-serve coffee pod market, but she is confident that Green Mountain will weather the changes
since it has brand recognition, a quality product and exclusive arrangements with most of its distributors, including her
company. Her company plans to continue distributing Green Mountain products indefinitely. She and her colleagues have
not seen any competing products that rival Green Mountain for quality, nor is there enough of a price discount on these
products for the company to consider severing its relationship with Green Mountain. At present, her company is
contractually prohibited by Green Mountain from selling competing products. Vue sales are slow.
“We have seen no impact on our sales from the patent expirations.”
“We will stay with Green Mountain.”
“We have not seen any price drop on K-Cups. No discounts, nothing. I
do not think there will be any price reductions.”
“I’d say 80% of our total business comes just from K-Cup sales.”
“Green Mountain has agreements with most of the major coffee
companies now. I think they will hold their market position.”
“Inventory is usually good. There are some occasional problems with
Green Mountain’s back orders, so I can’t say for sure if they always
have a good handle on demand.”
“I have already been approached by one sales rep selling a competing
product for the Keurig. Some of the other people working here have
also been contacted by different reps. We’re not really interested in
competitors’ K-Cups, and we can’t carry them anyway since we have an
agreement with Green Mountain.”
“More K-Cup competitors will probably help Keurig sales.”
“I think the Vue will catch on, but I can’t say how quickly. If it does, then
I think it will help offset any drop in K-Cups.”
“We only carry Vue and Keurig products. We do not offer any other
single-serving machine.”
“We put out more Keurigs on loan than we sell outright. As long as
they’re buying our coffee, they get the machine.”
President of a coffee and bottled water distribution company
This source believes Green Mountain will maintain market dominance on the strength of its branding and quality coffee.
He has been contacted by several K-Cup competitors with products ready to sell, but he is barred by Green Mountain
from selling “renegade” K-Cups. The source isn’t interested in competitors anyway because the quality and price
differentials are not sufficient to warrant a switch. Green Mountain’s lowest-priced K-Cup package, branded under the
Diedrich name, actually costs less per dozen than competing products he has seen. The death knell for K-Cups will come
when a company produces a quality coffee brewer in the $200 price range that operates with consumer ground coffees.
“There’s been no impact so far. I suspect it’s going to take six months for this to really take hold, if it’s going to.
Two issues will hold back renegade K-Cups: the quality that we’ve tried is not so great and the pricing is not
substantially different. Our numbers show about $8.30 a box delivered, versus $7.40 a box delivered. I doubt
I have already been
approached by one sales rep
selling a competing product for
the Keurig. Some of the other
people working here have also
been contacted by different
reps. We’re not really
interested in competitors’ K-
Cups, and we can’t carry them
anyway since we have an
agreement with Green
Mountain.
Sales Representative
Online Distributor, Northeast
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
11
our customers will switch from branded products for that price
difference. A certain percent of consumers will always buy on price. But
I think it will be difficult to get brand-loyal customers to switch.”
“Prices I’ve seen from renegade K-Cup manufacturers are about a 15%
discount over branded K-Cups and I don’t know if that’s enough to have
a huge impact on market share.”
“Green Mountain has notified distributors that they are not to sell
competitor’s K-Cups. We’ve gotten repeated messages on that. They’ve
made it clear. They have retail agreements in place as well. If I were
them I would be very quick to pull the trigger and make an example of
someone who violated that agreement.”
“Green Mountain had a better year with their inventory and distribution
after streamlining some things. We were back-ordered on Diedrich right
away when the price came down. Whether they’re going to produce
enough product remains to be seen. Their distribution system is kind of
annoying. They won’t let us sell hot chocolate on the Internet, but we
can distribute it locally. Little irritating things like that. The behavior of Green Mountain with their distributors is
such that they could blow it, but I suspect they are going to circle around and treat us right in light of recent
events and the likelihood of competition.”
“Only the Diedrich K-Cup is going down in price. A couple dollars less per box of 12. Actually, that makes them
about 75 cents a box cheaper than the renegades.”
“I’ve had three different sales reps show me what they’ve got. It’s going to be swatting flies for a distributor like
us, so that will be interesting. Competitors are going to grow. The question is, ‘Will it take away even 20% of the
market share?’ I don’t think so. There’s cost to market and capacity issues. Then pricing will drop in order to be
attractive. Partnering with Kroger might get a competitor there where they are taking market share.”
“Honestly, the game changer will be the company that introduces a quality single-cup machine in the $200
range that uses your own ground coffee.”
“To make the numbers work, these K-Cup competitors have got to get their coffee roasted at $3 to $4 a pound.
You’re not going to knock people’s socks off with average coffee. The single cup is still going to go full-bore
ahead, until a great machine comes out for ground coffees.”
“There are some strong competitors. Marley Coffee will have a nice niche. Kroger, of course. And Safeway. If Bed
Bath & Beyond [Inc./BBBY] ever did their own K-Cup, that might take off, too.”
“Our online sales are down a little bit, not because of the market but because of our Internet SEO issues. Our
Internet business didn’t perform as well. Local sales are growing; I’d say they’re up 10% from a year ago.”
“I would stick with Green Mountain and plan on it.”
“Assuming non-authorized distributors want to sell them, yes, I think K-Cup competition could increase Keurig
sales. There are also other machines coming that can use K-Cups. Newco [Enterprises Inc.] is making one, but I
hear it’s a little pricey.”
“We haven’t started distributing Vue. It will take us awhile to evaluate whether there’s a demand. It’s more
expensive than a K-Cup and I think it’s going to be a hard sell.”
Sales/service representative for an online coffee distributor; repeat source
K-Cup sales are up about 10% this year compared to last year, driven in part by a 20% increase in retail price in response
to Green Mountain’s rise in prices. There has been no downside to sales thus far as a result of patent expirations, nor
have any competitors approached the source with their own versions of the K-Cup. The company will continue its
licensing arrangement with Green Mountain, which bars them from selling competing coffee pods. While there may be
some short-term shakeup in market share for single-serve coffee, she believes Green Mountain will ultimately regain any
lost ground and hold it once the playing field clears. Her company does not sell Vue products but may start if there is
customer demand.
“Green Mountain will be OK over the long term.”
“We’re only licensed to sell certain Green Mountain products and that means no competitors’ products.”
“We will definitely continue with Green Mountain.”
“There’s been no decrease in K-Cup pricing from Green Mountain. I haven’t heard anything that there might be
any discounts.”
There’s been no impact so far. I
suspect it’s going to take six
months for this to really take
hold, if it’s going to. Two issues
will hold back renegade K-
Cups: the quality that we’ve
tried is not so great and the
pricing is not substantially
different.
President, Coffee & Bottled Water
Distribution Company
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
12
“Keurig sales have been pretty much flat this year, about the same as last year.”
“Our inventory is good. We can usually get what we need. There are back orders sometimes, but that happens
with all the companies we do business with.”
“More K-Cup competitors would probably cause an increase in Keurig sales.”
“Our best-selling non-Keurig coffee machine is the Melitta single-serve machine. It’s very popular.”
4) COMPETITOR The source said sales of his competitor generic K-Cups are increasing and distribution is growing. His coffee pods are 20% to
30% cheaper and occupy shelf space right next to Green Mountain K-Cups. He admits customers are nervous about Green
Mountain’s insistence on the removal of his brand from shelves but said more stores are beginning to carry his products. His
product does not use plastic so it is cheaper to manufacture and more environmentally friendly.
President and founder of a U.S. coffee company
The source’s coffee pods are priced 20% to 30% lower than K-Cups. The source
said his products occupy the same shelf space alongside K-Cups in
supermarkets and are making inroads into warehouse-style stores including
Costco and SuperValu.
“The expiration of the K-Cup patents is irrelevant to me. We believe our
sales will continue to increase.”
“They are so big, they will continue with or without K-Cups. I know they
are diversifying into other beverage areas that do not interest us right
now. We’re a little company and we’ll continue to grow, too.”
“Our products cost 20% to 30% less than K-Cups. Green Mountain has
had no competition so they’ve been gouging the public for quite some
time. I know they’ve been trying to deal down recently.”
“We are trying to get $6.99 for 12 cups. Theirs are $7.99 and up.”
“Our products are in stores. Sales started strong and they are growing.”
“Our products stand on their own.”
“Our customer response has been somewhat nervous as they think Green Mountain will cut them off.”
“Our products are positioned as an environmentally-friendly alternative. We don’t use plastic.”
“We have plenty of inventory to meet our demand. Distribution is growing. We are in Costco, Safeway, and
SuperValu, with more to come.”
“We are doing nothing special to promote the product. It sits on the shelf at a better price.”
“We have several real advantages. No cost for plastic, and we sell it for considerably less than K-Cups. There’s
also considerably less material going into the landfill with our product. We have found that we get a much better
infusion of the coffee as well.”
5) BIG BOX/DEPARTMENT STORES Three sources expect generic K-Cups to take share from Green Mountain’s K-Cups, provided the price is low enough and the
quality high enough. The three other sources did not comment. None of the sources currently carry competitor K-Cups. Three
of the six sources said Green Mountain K-Cup sales are not growing at their store, due in part to how easily accessible the
products are now, including in grocery stores and online. One store in Los Angeles had a front display section of K-Cups
approaching or at expiration date selling for 33% off. Two sources said Keurig sales have increased, but Vue sales are
nonexistent.
Department manager at a Bed, Bath & Beyond in Chicago
K-Cup sales have declined since last year now that many outlets are selling them. This source is aware of the patent
expiring but does not know of any plans to carry generic K-Cups. He saw the introduction of the Vue as Keurig’s response
to patent expiration, but it is not selling well compared to traditional Keurig machines. Nine of 10 single-serve machines
sold are Keurig and sales continue to climb, making it hard to keep them in stock. The company expects a strong holiday
Our products cost 20% to 30%
less than K-Cups. Green
Mountain has had no
competition so they’ve been
gouging the public for quite
some time. I know they’ve been
trying to deal down recently.
President & Founder
U.S. Coffee Company
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
13
season and has an abundance of Keurigs on order. The store also carries single-
serve Tassimo and CBTL machines but their sales are way below Keurig.
“We have heard about the K-Cup patent expiring. That is why they
introduced the Vue machine with different sized cups. It did not really
work. They do not sell that well. We sell one every once in awhile.”
“So far, we are not carrying any generic K-Cups and I don’t know of any
plans to do so.”
“We sell less K-Cups than we did a year ago. Everybody is carrying
them now. We used to have them exclusively and now you can get
them at the grocery stores, at Target, Wal-Mart and so many other
stores; even [the TJX Cos.’/TJX] T.J. Maxx/Marshalls has them now.”
“We literally have hundreds and hundreds of Keurig coffee makers on
order for the fourth quarter.”
“Out of 10 coffee machines sold, nine would be Keurigs. The other one
would be any of the 10-cup coffee makers.”
“For the year and a half I have been here, Keurig sales have been strong. There has not been any kind of drop.
We can barely keep them in the store.”
“With the single-serve coffee makers, Keurig is way ahead of the pack. Then, it is Tassimo with CBTL as the least
popular. We got those in last fall. They have their own cups and are not compatible with K-Cups.”
“When the Tassimo came in, we did sell some as people thought they would make better frothy drinks. That has
not been the case and sales soon dropped off and have not come back. People just go with the Keurig’s.”
“The Cuisinart single-serve machine sells occasionally but nothing compared to Keurig sales.”
Reporter Observations: Four Keurig machines were set up for demonstration on a Monday at 8 p.m. and approximately
20 machines were displayed on an end cap for purchase. The K-Cups were nearby in a separate display. The Tassimo
machines and pods were on their own rack in the center of the aisle. The CBTL machines and associated cups were on
another shelf with other coffee makers. One customer browsed the section but did not make a purchase. Neither Keurig
nor K-Cups were on promotion.
Store manager, Bed Bath & Beyond near Atlanta
He doubts K-Cups will lose share to knock-off pods because his predominantly middle-class customers will choose quality
over price. He does not have any knock-off K-Cups coming into his location and
does not know if his store will carry them. Sales of Green Mountain K-Cups are
level compared to last year, as are competitors’ pods. Keurig sales are
consistent compared with a year ago, while Vue sales are nonexistent.
“I haven’t heard anything about K-Cup knockoffs coming into my store.
I don’t know if we will be carrying any.”
“I didn’t know that the GMCR patent is expiring.”
“Moderate income families will still want the quality–if the knock-offs
are cheaper but the quality is not there, they won’t buy them.”
“We haven’t sold any Vue machines. I think we started carrying them
in April of this year. I don’t have anyone coming in and asking for the Vue.”
Reporter Observations: The store was very busy with customers on Tuesday at 12:30 p.m. Two customers were in the K-
Cup section choosing coffee. The K-Cup section was very large and the selection varied—hot tea, coffee in many flavors
and hot chocolate.
Front-end manager at a Bed Bath & Beyond in New Jersey
Lower-priced competition to the K-Cups will be well received by customers and may have an impact on sales for GMCR.
Presently, K-Cups and Keurig machines are the top-selling single-serve coffee products and show trends of continued
interest and growth.
“We don’t carry any competitors to the K-Cups. I haven’t heard anything about the patent expirations or different
products coming to our store. I’m sure people will be interested if there is a lower-priced competitor.”
We have heard about the K-
Cup patent expiring. That is why
they introduced the Vue
machine with different sized
cups. It did not really work.
They do not sell that well. We
sell one every once in awhile.
Dept. Manager, Bed, Bath & Beyond
Chicago, IL
If the knock-offs are cheaper
but the quality is not there, they
won’t buy them.
Store Manager, Bed Bath & Beyond
Atlanta, GA
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
14
“The Keurig machines sell very well. We sell quite a few of them. Sales are up from last year. People like the
variety and convenience.”
“The Vue is doing fine. They are purchased by true ‘coffee people.’ The sort who drink coffee 24/7. It brews a
stronger, bigger cup. There also aren’t as many beverage options for the Vue. The other Keurig models sell
better.”
“Keurig is by far the best-selling single-serve coffee machine we carry. We also sell the Tassimo. That is
purchased more by people that prefer drinks like cappuccino.”
“The only reason people ever bring the machines back is due to buildup that occurs when they use tap water.
It’s easy to fix–they need to run a descaler or vinegar through the machine. We’re able to replace the machines
if necessary. Sometimes people come into upgrade to a better model or to the Vue.”
Reporter Observations: Keurig coffee makers and a large selection of K-Cups were right at the front of the store. A sign
hanging from the ceiling promoted the Vue next to a video demonstration of the machine. No customers looked at the
machines or K-Cups during a half-hour visit on a Friday at 10 a.m.
Sales associate, Bed, Bath & Beyond near Los Angeles
The source was restricted from discussing competitor K-Cups but said Keurig sales continue to climb while Vue sales are
nearly nonexistent. Store observations revealed K-Cups approaching expiration date on clearance at 33% off.
“I really don’t think I’m supposed to talk about K-Cup knock-offs.”
“I’d say single-serve coffee machines are getting more and more
popular. Keurig has been doing quite well. Since I started working here
about nine months ago, I’ve watched more and more people buy
them.”
“I see a lot of people invest the time to watch the video at the Vue
display, but not so many of them choose to buy it. Vue brews a much
larger amount, but I guess that’s not what our customers are interested
in.”
Reporter Observations: At the store entrance sat a large display of K-Cups
approaching their expiration date with a clearance sign for 33% off. Another
display stood beyond that filled with K-Cup storage dispensers on sale for $9.99 to $24.99. A 20-foot long wall displayed
Keurig Mini Plus and Platinum brewers, as well as a wide selection of K-Cup coffee and teas. Competitors included
Cuisinart and Tassimo. Vue had the display right beside Keurig and included a monitor continuously running a
demonstration video.
Assistant manager at a Kohl’s store in the Chicago area
Knock-off coffee pods could result in reduced sales for Green Mountain and force them to reduce prices. Green Mountain
K-Cup sales are the same as last year. Keurig brewer sales have increased 5% to 10% year to year. They do not carry
knockoff pods but have recently started carrying a Bella single-serve machine for $29.99 that will compete with the
Keurig Mini, the store’s best-seller. Vue sales are slow as the product has not caught on yet.
“We have not heard anything about K-Cup patents expiring. Keurig
usually keeps us pretty informed about what is happening, but we have
not heard that.”
“Generic K-Cups would be a good thing for the customer, but Green
Mountain could lose some business. It could force Keurig to lower their
prices and it would stop their monopoly.”
“We do not carry any K-Cup knockoffs at this store, only Keurig
products.”
“K-Cup sales have not really increased too much in the last year. They
are available at so many places now. People like me tend to stock up
on them when they are on sale.”
“We sell more K-Cups when they are on sale.”
“We are selling more Keurig coffee makers than we were last year by at
least 5%; maybe 10%. Keurig is one of the top sellers in the store. We
At the store entrance sat a
large display of K-Cups
approaching their expiration
date with a clearance sign for
33% off.
Reporter Observation
Bed, Bath & Beyond, Los Angeles
Generic K-Cups would be a
good thing for the customer,
but Green Mountain could lose
some business. It could force
Keurig to lower their prices and
it would stop their monopoly.
Assistant Manager, Kohl’s Store
Chicago-area
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
15
sell machines every day.”
“The Minis are popular and they are starting to get some more competition. We just got in a mini single-serve
from Bella a few weeks ago. They don’t use K-Cups but are designed like a Keurig. They are about a fourth of the
cost of a Mini Keurig which is now $124.99. The mini Bella is $29.99.”
“The Vue is doing OK. People are getting used to it. They have not totally caught on yet.”
“We sell way more of the traditional Keurig machines over the Vue. There is no comparison.”
“Keurigs are very good and sell well to college students and single people. We sold quite a few Minis for back to
school and they are still selling. Keurig also does well with bigger families who have all different schedules and
don’t want a pot of coffee sitting all day.”
“The Bella single-serve machine should sell well, especially for the price. But some people want the Mercedes
and some are fine with a Toyota.”
“The Cuisinart machines sell OK but nothing compared to the Keurig’s.”
“I personally drink tea using my Keurig and it is a great idea for them to put vitamins and antioxidants in their
mixes. People need to be healthier these days.”
Reporter Observations: At 7 p.m. on a Thursday, the store had a Keurig display with five demo machines and a Keurig
sign above it. The Vue machines were on a separate shelf next to the traditional machines. The Keurig Minis, however,
were a couple of tables over from the main display and on a table displayed with the new Bella single-serve machine and
a Cuisinart Mini Prep food processor. This lost some continuity with the display and demonstration. A man in his 50s
purchased a K-Cup reusable filter for $24.99. He was the only customer in the department during the half-hour visit.
Assistant manager, Wal-Mart near Atlanta
K-Cup sales are 5% to 10% higher than they were a year ago. The source was unaware GMCR will lose the K-Cup patent.
He didn’t know if they would sell the knockoff pods, but said price will determine their success. Customers opt for cheap
prices and currently the K-Cups sell for $10.98, so the knockoffs would need to be about half that price to motivate K-
Cup users to switch. Keurig sales are up 10% to 15% over last year. His store
does not sell the Vue.
“If we do carry knockoff K-Cups, if they sell will depend on price. My
customers here go for the cheap.”
“We have a diverse store with customers that always look at price. If
the quality is good on the knockoff and the price is good, it will take
down K-Cups.”
“Yeah, we sell quite a few of the single-serve coffee machines.”
“We don’t carry the Vue machine.”
“Keurig machines sell better—we don’t see many of the competitor
machines move.”
Reporter Observations: The store was extremely busy on a Tuesday at 3:30 p.m. The K-Cup/coffee maker section had no
shoppers, and the supply of K-Cups was limited to several flavors of coffee.
6) GROCERY STORES Two sources said competition will cut into K-Cup purchases as customers will prioritize price when shopping for coffee pods.
High enough quality will keep them from switching back to K-Cups. The other two sources, stores that will carry their own
private label K-Cups, were unaware of K-Cup competitors, and did not comment. All four sources said K-Cup sales have
increased between 5% and 10% year to year. Two sources said K-Cup sales take off when the product is marked down,
furthering the belief that lower-priced alternatives will attract an audience. One store has heard rumors they may begin
carrying a Keurig brewer in time for the holidays. One store in Los Angeles had all of its K-Cups on sale.
Manager of a ShopRite in New Jersey
K-Cup sales are strong and growing. They rarely go on sale, but when they do it is hard to keep the product in stock.
Based on this trend, it is expected that customers will follow price when competitive products are introduced. This poses
a threat to Green Mountain’s market share and continued growth.
We have a diverse store with
customers that always look at
price. If the quality is good on
the knockoff and the price is
good, it will take down K-Cups.
Assistant Manager, Wal-Mart
Atlanta, GA
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
16
“The K-Cups are doing great. Sales are strong and are up year over
year.”
“K-Cups rarely go on sale. When they do, it is no more than $1 off, and
they fly off the shelves when discounted.”
“Customers are going to follow price. If the new products are cheaper I
do think that competitors will cut into sales of K-Cups.”
“I have not heard about the patent expiration or competitors coming to
market. If they do I’m sure that we will carry them in the store.”
“We do not currently have any products that compete with the K-Cups.”
“We do not sell Keurig machines.”
Reporter Observations: A selection of approximately 50 K-Cup varieties was on display toward the front of the coffee and
tea aisle. None were on sale. The store does not carry cups for the Vue.
Assistant manager of a Jewel-Osco grocery store in Chicago
He is unaware of Supervalu’s pending release of its own K-Cup option and the store does not sell any pods for Keurig
machines other than K-Cups. K-Cup sales have increased 5% over last year and are even stronger at their stores in more
affluent areas. The store orders two cases of K-Cups weekly and sells two to three boxes daily.
“I have not heard anything about Supervalu releasing its own single-serve coffee.”
“For now, we only sell the Keurig K-Cups. They do pretty well at the store. Sales have picked up about 5% since
this time last year. K-Cup sales keep doing better and better.”
“We don’t carry any off-brand K-Cups.”
“We order two cases of K-Cups a week so that works out to selling two to three boxes per day.”
“I hear from customers that they like the convenience and easy cleanup that comes with using K-Cups.”
“We sold more K-Cups at the store I was previously at, which is in a more affluent area.”
“I have heard rumors about getting Keurig machines in as a Black Friday door-buster special but nothing is
confirmed. We have no idea how many each store would get or what the price will be.”
Reporter Observations: The K-Cups were in the coffee section with approximately 30 flavors represented, including name
brands such as Folgers, Starbucks, Dunkin’ Donuts, Tazo and Swiss Miss hot chocolate. Prices per box were $6.99 to
$9.99. The shelves are well-stocked and no flavor was sold out. No customers browsed or purchased K-Cups during the
half-hour visit at 4 p.m. on a Wednesday. A few flavors were discounted but for the most part K-Cups were not on
promotion.
Manager, Stop & Shop in New Jersey
New competition will certainly have an impact on the sales of K-Cups, but the extent of the threat will come down to how
knockoff products compare on both quality and price.
“If new product lines come out I’m sure we’ll be carrying them in the
store.”
“It stands to reason that K-Cup sales will be impacted by competing
products.”
“The long-term impact will come down to quality and price of the K-
Cups versus the knockoffs.”
“The K-Cups are doing very well. Customers seem very happy with the
product.”
“I haven’t heard about the patent expiration or the emergence of
competing products.”
Reporter Observations: The store offered a selection of approximately 50 K-Cup varieties in the tea and coffee aisle. No
Vue products were offered. A coupon dispenser offered a manufacturer’s coupon for $3 off any two 12-count boxes of
select brands of K-Cup packs. Signs notified customers of the exact savings of Stop & Shop’s prices over competing
grocery stores Pathmark and ShopRite. Savings compared with other stores ranged from $1.50 to $2.50 depending on
the flavor.
Customers are going to follow
price. If the new products are
cheaper I do think that
competitors will cut into sales
of K-Cups.
Manager, ShopRite
New Jersey
The long-term impact will come
down to quality and price of the
K-Cups versus the knockoffs.
Manager, Stop & Shop
New Jersey
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
17
Store manager, Vons near Los Angeles
K-Cup sales are up 10% year to year, though all products in the store are on sale. There is little knowledge of competitor
pods on the horizon.
“Sales of the K-Cups are doing great now, about 10% better than a year ago.”
“We don’t have any knockoffs yet, but if they’re coming. I’m sure I’ll see them soon.”
Reporter Observations: The store had six shelves of K-Cups about two-feet wide horizontally. They all said ‘Keurig Brewed’
with Folgers, Starbucks, Tully’s and Tazo brands. All products were on sale—marked down from $9.99 to $7.99 for a pack
of 12.
7) CUSTOMERS Seven of eight sources will try generic K-Cups and evaluate whether to switch brands based on quality and cost savings. One
customer expects to stay loyal to Green Mountain K-Cups. Sources are eager to save money with cheaper products but are
leery of whether the drop in price will also result in a drop in quality and taste. If quality is on par with K-Cups, sources may be
swayed to switch brands, but they are not overly optimistic about it. Nonetheless, the sources expect competition to cut into
K-Cup’s market share. Five of the sources said they have increased their K-Cup purchases year to year, while three said their
purchase patterns have remained the same. Customers noted the abundant variety of K-Cup flavors as a reason to stay loyal
to the brand. None are interested in the Vue.
Woman in her late 70s, in a suburb west of Atlanta
If the knock-off pod is a lot less expensive, she might try it. However, if the quality is not there, the price point won’t
matter to her as she likes consistently good coffee. But she believes knockoffs will cut into K-Cup’s market share as
many people will look to save money where they can. She is buying 25% more K-Cups for her Keurig Elite compared to
last year because she enjoys the different flavors and the freshness of each
cup. She purchases K-Cups at big-box stores and wherever they are on sale, or
whenever an offer comes through the mail. In the past few months, she has
seen many sales for K-Cups. If her supermarket offered K-Cups she would try
them. She has no desire to upgrade to the Vue because of its high price.
“Knockoffs will take K-Cup market share because times are tough.
People will save money where they can.”
“If the knockoffs are less expensive, I might try them. But if the quality
is not there I won’t buy it. I like consistently good coffee.”
“I see a lot more offers for K-Cups on sale and at a discount. Bed Bath
& Beyond had their K-Cups for 50% off; Macy’s offers a reduced price
with free shipping, and Kohl’s has a consistent price that is what the
bigger stores normally use as their sale price.”
“I’m buying more K-Cups than last year because I like the freshness of it—every cup tastes fresh brewed. I found
flavors in the K-Cup that I like. The coffee is quick and easy to make.”
A 33-year-old woman in Chicago
Competitor pods could take away some Green Mountain business. but they would have to be of similar quality and taste
in order to compete. She is open to trying the knockoffs, especially if one of her favorite flavors is discontinued from
Keurig. Her K-Cup purchasing habits have not changed in the last year and she purchases them most often at Wal-Mart.
K-Cup prices have been consistent in the last year. She got her Keurig Elite Brewer two years ago and would purchase
another Keurig over a competitor’s machine.
“The K-Cup patent expiration might affect business. But people who have Keurigs will look for the K-Cups. They
might not buy knockoffs as they will not be sure of the quality.”
“Depending on the taste and price of knockoffs, they could affect Green Mountain’s business. But the taste and
quality has to be the same or else people will not buy them. People like what they like and what they are used
to.”
“If I have to buy knockoffs, I will. If Keurig stops making a flavor I like, I would try a knockoff of it.”
If the knockoffs are less
expensive, I might try them. But
if the quality is not there I won’t
buy it. I like consistently good
coffee.
K-Cup Customer
Atlanta, GA
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
18
“I am buying the same amount of K-Cups and drinking the same amount of coffee compared to a year ago. I am
the only one in the house that drinks it. That is why I got the Keurig. It is much more convenient than brewing
and wasting a whole pot of coffee. Plus, you can have different flavors.”
“I buy K-Cups at Wal-Mart and Kmart. I have also purchased them at Bed Bath & Beyond and at Starbucks. They
are around the same price at all the stores, maybe a dollar difference.”
“I don’t really see K-Cups on sale very often, but I also have not seen the price go up in the last year.”
“I own the Keurig Elite. I have had it almost two years. I bought it from Kohl’s using a coupon.”
“I would not consider a competitor’s single-serve machine. If something should happen to mine, I would
purchase another Keurig. I really like it.”
Woman in her late 30s, New Jersey
She is very interested in competitor pods for her Keurig machine as she expects
they will be cheaper and save her money. With the economy still a concern and
continued unemployment, making single-serve coffee in place of a trip to
Starbucks is one way to save money, and cheaper K-Cup copycats will help save
even more. Her one concern is whether the taste and quality will drop along with
the product price. She also believes some customers who strongly prefer a
particular brand or flavor of K-Cup, such as Starbucks, may continue to
purchase K-Cups in spite of higher costs.
“I would certainly buy knockoff K-Cups. Anything to cut back on price is
a plus.”
“If cheaper versions of the K-Cups are available I think people will buy
them. Everyone is looking to save where they can. That said, they will
have to be well made—in terms of working well with the machines and
the quality and variety of the drinks.”
“Some people might not make a change. My husband, for example, really likes Starbucks coffee. He’s pretty
fussy about coffee and might turn up his nose at a cheaper version that isn’t his routine Starbucks French
Roast. I would try to get him to try a cheaper version—but if he doesn’t like it we’ll be sticking with the K-Cup.”
“I feel like I see K-Cups more frequently. And they are often on sale. They have them at Costco, which is great.
I’ve never really done the math to compare the pricing, but I assume I’m getting a deal there.”
“My current machine is fine. I have no interest in upgrading to a different version or switching to a competitor. If
this one breaks down, I think we would replace it and I would shop around at that point. But even then I wouldn’t
be inclined to pay extra for any special options. A basic model is fine with me.”
“I stopped working earlier this year, and we are looking at ways to cut back on costs. I would say that I’m using
the machine more. I’m at home, so I’m here to use it, but I’m also trying to avoid the expense of going out to
Starbucks or Dunkin’ Donuts. This is a good way to give myself a treat of sorts but without much fuss.”
“I’ve had a Keurig for two or three years. It’s become part of our daily routine. My husband likes strong coffee
and I tend to prefer tea or a flavored coffee, like Hazelnut. It is an easy way for us to start our day with whatever
we want. I also use it when we have friends over. I like that I can offer people a drink and variety.”
“I tend to buy K-Cups at the grocery store like ShopRite or at Costco.”
Woman in her mid-30s, New Jersey
She welcomes competitive pods as a way to save money on K-Cups. She thinks
customers will be excited about the competition and open to trying less
expensive products that can be used with Keurig machines. Taste will be more
important than price when it comes to keeping customers.
“I hadn’t heard about the patent expiration or the fact that there will be
new competitive products available. That is exciting. I’ll certainly be
happy if the prices are lower. I would certainly give knock-off products a
try, and assuming I like them I’d have no problem going with an off-
brand or a grocery-branded product.”
“I expect other customers will look for bargains as well.”
I would certainly buy knockoff
K-Cups. Anything to cut back on
price is a plus. … That said,
they will have to be well made—
in terms of working well with
the machines and the quality
and variety of the drinks.
K-Cup Customer
New Jersey
I’ll certainly be happy if the
prices are lower. I would
certainly give knock-off
products a try, and assuming I
like them I’d have no problem
going with an off-brand or a
grocery-branded product.
K-Cup Customer
New Jersey
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
19
“I received my Keurig for Christmas last year. I love it. I live alone and it is a perfect tool for my needs. It was a
pain to make coffee in a regular machine—but this way I can make a single cup in the morning and go.”
“I use it every day. My usage hasn’t changed since I first got the machine.”
“I just buy the K-Cups here in the grocery store. I do stock up when they are on sale.”
Woman in her 50s, Los Angeles
Competitor pods are intriguing as a way to cut back on costs, but the quality has to be on par with K-Cups. Her K-Cup
purchases have increased in the last year.
“I’m actually buying K-Cups a bit more than I did last year, mainly
because my 16-year-old son has started drinking coffee this year.”
“I’m always looking for ways to save money, but I won’t bend on quality.
It would have to be just as good.”
“I’ve also been seeing a wider variety of K-Cup flavors at the grocery
store.”
“When I buy the K-Cups at Costco, they typically have one type to
purchase. But that’s when I feel like I’m getting the best price.”
“We have the Platinum brewer and we love it.”
“It’s a great machine to have for just being able to offer someone a
quick cup of coffee—because it’s always fresh.”
“I don’t really have any interest in the Vue, probably because I’m so happy with the one I have.”
Woman in her early 50s, in a suburb west of Atlanta
If the flavor is good and price is less expensive, she will buy K-Cup knockoffs, including supermarket private-label brands
if they are of comparable quality. She believes the knockoffs will cut into K-Cup market share if priced right. This
customer has seen more variety of K-Cups in the store lately, but the price is still high and rarely on sale.. She is buying
more K-Cups for her Platinum brewer than she was a year ago because they are easy to use, shopping at grocery stores
and Bed Bath & Beyond. She had not heard of the Vue.
“If the flavor is good and the pods are less expensive, then yes I’ll buy knockoffs.”
“If Kroger offered a private-label K-Cup then I would try it.”
“If the price is right then knockoffs will cut into K-Cup market share.”
“I am buying more K-Cups than last year because they are easy to use.”
“I see more variety of K-Cups in the grocery store. However, the price is still high and they rarely go on sale.”
“I get my K-Cups at Kroger, Publix [Super Markets] or Bed Bath & Beyond.”
Woman in her 40s, Los Angeles
She will purchase competitor pods as long as the price allows significant savings
and the quality does not drop much. She is purchasing more K-Cups than she
was a year ago after her office acquired a new Keurig machine. She notes that K-
Cups are on sales now more than they were in the past.
“I actually bought one of the Keurig machines for my office, so I’m
buying the K-Cups regularly now. Last year I wasn’t buying them at all
because I didn’t have the machine.”
“I suppose I’d buy knockoffs if the price was significantly lower. But you
can’t really expect the price to drop without quality going down as well.”
“My office manager buys the K-Cups online.”
“I’ve seen them on sale a lot more lately than ever.”
“I own the Platinum brewer, which is perfect for our needs right now.”
“I look forward to coffee in a whole new way since I got this machine.”
Chicago woman in her 40s
Consumers will remain loyal to K-Cups over future knockoffs as they fear quality and taste will suffer with off-brand
products. Prior to her Keurig Mini purchase a year ago, she drank coffee once daily but now brews two to three K-Cups
each day due to the consistency of the product. She purchases K-Cups bimonthly, most often at Bed Bath & Beyond. She
I’m always looking for ways to
save money, but I won’t bend
on quality. It would have to be
just as good.
K-Cups Customer
Los Angeles, CA
I suppose I’d buy knockoffs if
the price was significantly
lower. But you can’t really
expect the price to drop without
quality going down as well.
K-Cups Customer
Los Angeles, CA
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
20
recently purchased a Keurig Elite to give as a gift. Due to counter-space limitations, she would not purchase a Vue but will
repurchase a Mini should hers malfunction.
“I don’t think I will buy any K-Cup knockoffs, probably because I am hooked on the brands I get now from Keurig.
I would not want to chance it not tasting the same.”
“I will probably not buy private-label K-Cups because I am not sure the
quality of the coffee and other things I like, such as hot chocolate,
would be there.”
“Prior to purchasing the Keurig, I was drinking one cup a day, and now
I am having two or three a day. It is just so convenient to easily make
another cup.”
”I am buying more K-Cups than a year ago. I am drinking more because
every cup tastes exactly the same; none too strong, none too weak, all
just right.”
“I buy a box of K-Cups approximately two times a month. I buy a couple
of boxes of 16 at Bed Bath & Beyond. Or Costco’s single box of 36.”
“I know Folgers makes K-Cups, but you don’t see the other brands like
Maxwell House having it in the grocery stores.”
“I just bought the Keurig Elite two weeks ago as a gift … for $90 with coupons.”
“I would not upgrade my machine to the Vue because the Mini is great for me. I don’t have a lot of counter space
and the Vue is too big. I purchased the Mini because of the size.”
“Losing the K-Cup patent should not hurt Green Mountain’s business. People will continue with what they are
used to getting.”
“All the Keurigs make one cup at a time, so I don’t understand the purpose of how big the Vue machine is.”
8) ONLINE SURVEY OF GMCR CUSTOMERS Using SurveyMonkey, Blueshift gathered data from GMCR customers September 17 to 19. Filtering for responses of those
who are Keurig owners, Blueshift used data from 70 respondents throughout the United States. Of the 67 Keurig owners,
52% were men and 48% were women. Data showed that an overwhelming majority of Keurig owners are willing to try K-Cup
competitors, and almost as many are open-minded about switching brands. Price and taste will be the deciding factors,
though price is deemed more important than taste. K-Cup purchase patterns are mixed compared to a year ago.
K-Cups are coming off-patent in September and competitor coffee pods that work in Keurig machines will hit store
shelves soon. Will you try any of these competitor coffee pods in your Keurig brewer?
The majority of sources (89.6%) are willing to try K-Cup competitors.
89.7%
10.3%
Yes
No
I am buying more K-Cups than
a year ago. I am drinking more
because every cup tastes
exactly the same; none too
strong, none too weak, all just
right.
K-Cups Customer
Chicago, IL
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
21
Would you switch to competitor coffee pods over K-Cups?
The majority of sources (73.1%) are willing to switch to K-Cup competitors.
73.1%
26.9%
Yes
No
What will be the deciding factor in whether you switch to competitor coffee pods over K-Cups?
Price (53.7%) and taste (40.3%) are the two most important factors in the decision to switch to K-Cup competitors.
53.7%
40.3%
2.9% 1.5% 1.5%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Price Taste Environment(recycle-ability)
Availability Packaging
Are you buying more or fewer K-Cups than you were one year ago?
A slight majority (55.2%) is buying more K-Cups than they were a year ago.
55.2%
44.8%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%
More
Less
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
22
Secondary Sources
Seven sources focused on the potential for a smaller-than-anticipated impact of the expiring patents; safety warnings about
generic K-Cups placed in Keurig brewers; trademarking the name of its highly-anticipated espresso machine, consumer
enthusiasm over less expensive K-Cups and competitors after patents expire; entry of grocery chains and packaging suppliers
into the competitive K-Cup market; and Green Mountain’s plans for its new line of health-related drinks.
August 10 Shoffee.com blog post
Green Mountain’s remaining K-Cup patents are of considerable value and will curtail the explosion of competitor K-Cups
flooding the market this fall. Green Mountain K-Cups will maintain their advantage over generics because of their higher
quality.
“One of the expiring patents relates to the filter within the Keurig K-
Cup, and since this patent was filed, Green Mountain has changed the
design of the filter it uses, which is (you guessed it) protected by a
patent that doesn’t expire this September.”
“So while the idea has been floated out there that come this
September, the single-serve coffee industry will begin to look like the
wild west, with quality, non-Green Mountain K-Cups popping up all over
the place; that may not be the case.”
“Many of those Keurig-compatible cups that pop up will simply not be
the same quality that many Keurig lovers are used to, and those which
do produce a cup of coffee that can be compared to one made from a
K-Cup carrying the Keurig Brewed Seal may find themselves in court as
GMCR will do its best Apple impression protecting its non-expiring
patents in the legal system.”
“So maybe the idea that you’ll be able to spend much less and get the same quality cup of coffee from a K-Cup-
like package, not carrying the Keurig Brewed logo this September is not necessarily a slam dunk.”
“Of course there is the fact that Green Mountain is bringing back the Diedrich Coffee Brand as its Keurig K-Cup
‘Value Brand,’ at a price of about $0.10 less per cup to the end user.”
“Diedrich Coffee Keurig K-Cups will be available on Shoffee.com this September.”
August 28 Shofee.com blog post
Green Mountain is promoting its K-Cups with a seal to maintain differentiation from generic competitors. It also brings to
light the notion that generic K-Cups may not be as safe in Keurig brewers and consumers should beware of potential
risks involved when using knockoffs in their Keurig machines.
“With September right around the corner, within the coffee industry, it feels just a little bit like it did in December
of 1999—we all know that something is going to happen, but no one is quite sure what it will be.”
“Of course, we’re referring to the fact that two (of the many) patents on Keurig’s K-Cup technology expire this
September, possibly clearing the way for a marketplace loaded with ‘knock-off’ K-Cups.”
“Earlier this month, we touched on the fact that one of the patents expiring is for a conical filter inside the
plastic cup—a filter that hasn’t been used to make Keurig K-Cups in years.”
“Why is this significant? Why does it matter, as long as you can put a filter inside a plastic cup and fill it with
coffee?”
“Because due to its shape, the amount of coffee it can hold is limited, thus resulting in less coffee being able to
fit inside each K-Cup. Since launching Shoffee.com in late 2007, two of our top three, and six of our top 10
selling Keurig K-Cups have been of the ‘extra bold’ variety; with the Keurig K-Cup filter patent that expires, there
can be no such thing as an ‘extra bold’ variety. Coffee can be roasted darker or more robusta beans can be used
to make a coffee have the feel of an ‘extra bold’ coffee, but no more coffee can be added to each K-Cup to
make it truly such.”
“That leads us into Keurig’s new marketing campaign, Meet the Keurig Brewed Seal. This August, K-Cup Portion
Packs, produced by Keurig Authorized Roasters, will begin to carry the Keurig Brewed Seal.”
“As a consumer, here’s what the Keurig Brewed Seal means to you:
So maybe the idea that you’ll
be able to spend much less
and get the same quality cup of
coffee from a K-Cup-like
package, not carrying the
Keurig Brewed logo this
September is not necessarily a
slam dunk.
Shoffee.com Blog Post
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
23
o Quality you can trust.
o Taste you can count on.
o Safety tested for your Keurig Brewer.”
“At first, we thought the third one might be a stretch, but after some research, we realized that safety is a
legitimate concern. Think about it, a new ‘knock-off’ K-Cup comes to market from a well-known roaster. The
product is viewed as OK, but the roaster constantly receives the feedback that while the resulting cup of coffee
is almost like what they have come to know from this roaster, it’s just a little weaker. Since this fictional K-Cup is
a well known brand, there is no tweaking the blend recipe, that just won’t work. The only answer may be to try
and cram as much coffee into this old-style filter as possible, and if you’ve ever overstuffed a My K-Cup, you
know what happens; water can’t pass through and it causes an overflow in your brewer.”
“Now when the aforementioned My K-Cup backs up, a lid that is screwed on tight is enough to withstand the
pressure created by the back up; but when a ‘knock-off’ K-Cup backs up the pressure will be enough to pop the
top and send grinds and water (presumably hot) shooting everywhere—now, in our eyes, that scenario does
create a legitimate safety concern.”
“So while we’re not about to sit here and say ‘stay away from all of the new Keurig friendly products that will be
hitting the market next month,’ we will tell you to be wary of what you put in your Keurig Brewer because unless
it has the Keurig Brewed Seal, it may not brew the cup you expect.”
August 15 Shoffee.com blog post
Green Mountain has trademarked the name of its upcoming espresso machine, which the article suggests may have
more of an impact than its Keurig or Vue brewers.
“With Green Mountain’s Keurig Brewing System and new Vue Brewing System already in retail stores
everywhere, it may seem hard to believe you’re reading another post about another brewing system from Green
Mountain, but it’s true; according to The Boston Globe, Green Mountain has trademarked the name Rivo for its
soon-to-be-released, high-pressure espresso machine.”
“The Italy-based espresso giant Lavazza, which as of February 24,
2012, owned five percent of Green Mountain has been rumored to
have been working with GMCR on this system for some time, and a
release later this year seems to make a lot of sense based on the fact
that Starbucks will be breaking into the at-home-brewing market with
its Verismo espresso machine.”
“In our opinion, the Green Mountain Rivo Brewing System should have
a much greater impact on single-cup brewing in the United States than
the Vue system, and even in some ways, the original Keurig K-Cup
Brewing System.”
“Around the world, the single-serve coffee leader is Nespresso, a high-
pressure espresso brewer. With the Green Mountain Coffee, and even
more so, the Starbucks brand well-known amongst coffee drinkers
throughout the United States, the Rivo and Verismo systems may finally
make high-pressured, single-cup espresso brewers common on countertops throughout the country, just like
they are throughout the rest of the world.”
“For anyone who looks at their morning cup of coffee as something that they simply drink out of necessity,
rather than enjoyment, the Green Mountain Rivo Espresso Maker may just look like another single-cup option,
but to those who truly love to experience their cup of coffee, the entry of the Rivo and Verismo brewers into the
marketplace may truly bring your coffee-drinking experience to the next level.”
“Watch for more on the Green Mountain Rivo here on The Shoffee Blog in the coming weeks as this post is
simply based on the trademark filing, and not an actual product announcement from GMCR.”
July 14 Lonny Paul blog with photos
A K-Cup consumer writes in his blog how much he is looking forward to purchasing generic K-Cups at a reduced price and
calls for Green Mountain to reduce its K-Cup prices as well.
“K-Cups, the staple of all Keurig Brewing System users, will finally have their patent expire on Sept. 16, 2012. In
a recent turn of events where Green Mountain was charging $8.99 - $10.00 for every box of K-Cups, they have
recently dropped their prices to only $6.00.”
In our opinion, the Green
Mountain Rivo Brewing System
should have a much greater
impact on single-cup brewing in
the United States than the Vue
system, and even in some
ways, the original Keurig K-Cup
Brewing System.
Shoffee.com Blog Post
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
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“That’s freaking excellent! I’m glad to see that Green Mountain is attempting to be proactive in the fact that
people can probably sell K-Cups for as little as a few dollars, considering the amount of coffee actually in one of
their boxes—and they need to start dropping their price now to stay relevant once the patent expires.”
“It was a good run—you overcharged me for coffee for years—now, it’s our time.”
Sept. 4 Supermarket News article
Supervalu is preparing to introduce its own private label generic K-Cup competitor, marking the third grocery chain to do
so after Kroger and Safeway.
“Supervalu is the latest private-label marketer to throw its hat in the single-cup coffee ring.”
“Java Delight Single Serve UnCup, a new single-portion size of its premium coffee product, will begin appearing
in stores in about a week, said Supervalu spokesman Mike Siemienas.”
“The pod can be used with share-leading Keurig brewing systems and others. Java Delight UnCups will be
launched in six flavors. Additional varieties are under development.”
“‘The UnCup pod provides our customers with a premium single serve coffee at an affordable price,’ said Sam
Mayberry, Supervalu’s vice president of private brands. ‘It was also important for us to develop a product that is
more environmentally friendly, and our UnCup single serve pod uses 30% less material by weight than the
leading national brand pod.’”
“Safeway, Pleasanton, Calif., merchandises an eco-friendly, Keurig-compatible pod that uses mesh rather than
plastic, under its Safeway Select brand. While Supervalu would not reveal its product’s manufacturer, Safeway
Select pods are made by Rogers Family Co.”
“‘We portion coffee in a little ball using filter material,’ Rogers Family Co. founder Jon Rogers told SN. ‘We don’t
have the costly cup so it’s cheaper. We appear to get much better infusion, and there is less material going into
the landfill.’”
“Cincinnati-based Kroger Co. will also debut coffee pods under its Private Selections and banner brands this
month. The pods will be compatible with Keurig single-cup brewers and ‘possibly more’ systems, according to
spokesman Keith Dailey.”
Sept. 5 Reuters article
Coffee packaging supplier LBP Manufacturing is opening its products up to companies looking to compete with Green
Mountain in the single-serve coffee space.
“LBP Manufacturing Inc., a supplier of packaging to coffee chains including Starbucks and Dunkin’ Donuts, will
soon sell filters for single-serve coffee, another move in the expected onslaught of competition for Green
Mountain Coffee Roasters Inc.”
“Matt Cook, president of the privately held company, said the product, called the UpShot, will launch in the
northern hemisphere in autumn.”
“He said LBP has ‘some significant partnerships,’ but declined to identify by name the brands that will use LBP’s
technology, saying it was premature.”
“The UpShot is made of recyclable plastic and may be tailored to the needs of customers, which could range
from private label manufacturers of single-serve coffee cups to other coffee brands not yet selling single-serve
portions.”
“LBP’s product is compatible with Keurig brewers, but also with other machines. Cook said this is part of a trend
away from proprietary systems—like Nestlé’s Nespresso and Kraft’s Tassimo—toward open standards.”
“He said LBP was confident its UpShot technology did not infringe any patents.”
“The U.S. market for single-serve coffee is dominated by Green Mountain and its Keurig system, but the
expiration this month of certain patents related to the design of its K-Cups has opened the door to a host of
lower-cost competitors.”
“LBP is not getting into the coffee roasting business, and as such will not compete directly with Green Mountain.
But it will help coffee roasters compete by keeping their costs down.”
“‘Most of the companies we’re talking with are very concerned about profitability in single-serve,’ Cook said.
‘Roasters are having a hard time controlling their costs because either they have to outsource it or because
there are licensing fees.’”
“But the anticipated entry of unlicensed competitors—such as those that might work with LBP—is factored into
Green Mountain’s forecasts, which call for sales to slow over the long term to annual growth in the range of 15
to 20 percent, down from an expected rate of 43 to 45 percent for fiscal 2012.”
Green Mountain Coffee Roasters
1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com
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“Green Mountain contends that its broad product range and new higher-end Vue system, will continue to drive
sales despite so many new entrants to the market.”
“TreeHouse Foods, which manufactures foods and drinks that retailers brand as their own, said separately on
Wednesday that it was on track to enter the private label single-serve coffee market in the fourth quarter.”
“Supermarket operator Supervalu said on Tuesday that it would launch this month its own brand of coffee in
single-serve portions, following similar moves from rivals Kroger and Safeway.”
Sept. 6 Bloomberg Businessweek article
Green Mountain announced its intentions to develop a line of health-related drinks.
“Green Mountain Coffee Roasters Inc. on Thursday plans to introduce a line of drinks touting antioxidants,
vitamins and other health benefits as the company looks to expand amid intensifying competition for its single-
serve coffee drinks.”
“The Waterbury, Vt.-based company’s ‘Wellness Brewed’ drinks, which can be made with its Keurig single-serve
brewing machines, come as the patent on its K-Cup technology is set to expire this month.”
“Already, supermarket operators The Kroger Co. and SuperValu Inc., have said they plan to introduce store-
brand versions of the single-serve coffee pods.”
“Separately, Starbucks Corp. plans to start selling its own brewing machine this fall called Verismo. The Seattle-
based company says its machine, which will let customers make lattes as well as traditional brewed coffee,
targets a different audience than the Keurig machine. But Green Mountain’s stock nevertheless took a hit when
the news was announced in March.”
“Green Mountain Coffee … has struggled recently amid a Securities and Exchange Commission inquiry, analyst
concerns over its reporting methods and the looming expiration of its patent.”
“In announcing its third-quarter results last month, CEO Lawrence Blanford said that sales growth would
moderate from the hyper-growth it had shown over the past few years.”
“Three of the new coffees to be introduced Thursday boast antioxidants and another called ‘Focus Blend’ has L-
theanine, an amino acid found in tea. Two other ‘Vitamin Burst’ drinks were introduced earlier this summer will
also be part of the Wellness line.”
“Mark Corey, who works in research and development at Green Mountain, said the company is not ‘speaking
directly’ to the benefits of L-theanine, noting that it needs to meet regulations by the U.S. Food and Drug
Administration for any product claims.”
“But consumer advocates often advise against putting too much value—or any—on the extra nutrients food and
drink companies add to their products.”
“‘Usually, they're added for commercial marketing purposes, to make (the product) look good,’ says Mike
Jacobson, executive director for the Center for Science in the Public Interest, which advocates for food safety.”
“Even if a drink boasts of antioxidants, for example, Jacobson noted that consumers don’t know exactly how
much they contain.”
“Besides, he said, nutrients such as antioxidants are easy to get just by eating fruits and vegetables. A peach,
for example, has fiber, potassium and a multitude of other nutrients.”
“Still, Green Mountain says its research shows that consumers want added health benefits from their food and
drinks. That gives the company an opportunity to deliver both to consumers, said Josh Kaplan, innovation brand
manager for Green Mountain.”
Additional research by Renee Euchner, Steve Evans, Tina Strasser, Maggie Purcell, Debbie Moss and Cindy Elsberry
The Author(s) of this research report certify that all of the views expressed in the report accurately reflect their personal views about any and all of the subject securities
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