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Brewing up market share

By: Rhoda Miel

April 17, 2012

CHICAGO (April 17, 11:50 a.m. ET)  — Mr. Coffee is learning to share the kitchen counter.

The big trend in home brewing is all about one-cup coffee makers — with Green Mountain Coffee Roasters Inc.’s Keurig brand leading the way, bringing new uses for plastics along with it for Green Mountain and independent companies selling accessories for the system.

While automatic-drip coffee makers like those sold under the Mr. Coffee brand name are still the most popular in the U.S., holding 39 percent of the market today, their share is slowly shrinking, while the one-cup format is on the way up.

“It’s just growing,” said Robert Vu, a Houston-based creator of Solofill LLC. “Everybody has to have a one-cup [system] these days,” he said.

Vu came to the International Home + Housewares Show to show retailers his polypropylene single-cup system.

The New York-based National Coffee Association USA recently updated its national survey of coffee use in the home. Automatic-drip models made up 43 percent of the U.S. market in 2010, but have dropped four percentage points in three years.

One-cup systems, in the meantime, have gone from 4 percent of the U.S. market in 2010 to 12 percent.

Publicly traded Green Mountain’s annual report shows just how much that means in dollars and cents. For its last fiscal year, which ended Sept. 24, the company saw net sales of $2.6 billion, up from $1.3 billion in the previous year. The bulk of those sales come from the K-Cup, a coffee refill system with plastic, foil and paper packaging. Green Mountain sold $1.7 billion worth of K-Cups in fiscal 2010-11, up from $834 million the previous year.

It also is investing in new production. The Waterbury, Vt.-based company, which injection molds K-Cups and roasts its own coffee, is expanding production in Essex, Vt., and expects to add production in Windsor, Va., in 2012. It currently employs 5,600 and does manufacturing in Vermont, Tennessee, California, Washington, Quebec and Ontario.

K-Cups are at the heart of Green Mountain’s business plan. The company notes in federal documents that it sells its brewers at cost, and sometimes below cost, to drive sales of the K-Cup packs. Its brewers are made by a supplier in China, while Green Mountain controls production of the K-Cups.

Keurig-compatible brewers are sold under other brand names, including a model from stalwart brand Mr. Coffee.

Through a series of acquisitions and licensing deals, the company now offers 200 varieties of coffee in the cups. Each cup is a multimaterial package with plastic, foil and paper. Users place the cup in a coffee maker. When the top is lowered, a filler needle punctures the top of the plastic, adds hot water to the coffee mixture and produces a finished cup.

The K-Cup also is providing inspiration for Vu and other manufacturers who see it as an opportunity for new business.

Both Vu’s Solofill and Ekobrew, by Eko Brands LLC of Mukilteo, Wash., debuted at the housewares show, held March 10-13 in Chicago. The two companies developed a refillable, reusable PP replacement for the one-use K-Cups.

Fans of the one-cup system point to the ability to make a single fresh-brewed cup anytime, with the K-Cup providing a variety of tastes in coffee, tea, hot chocolate and even hot cider.

But companies such as Vu’s Solofill point out that one-cup systems use a lot of cups, and the mix of materials makes them unacceptable for traditional recycling. Also, the pre-measured blends offer little flexibility for coffee lovers who prefer a local roaster or blend.

“When I first came on to this, it was all so wasteful,” Vu said.

In addition, the cost of buying K-Cups adds up, he said. A pack of 50 K-Cups retails for $25-$30. In comparison, he estimates users spend about 5 cents per cup for their own coffee with a reusable filter that slips right into the same spot on a Keurig coffee maker.

“That gives you a lot more flexibility,” said Gary Shaffer, sales director for Eko Brands.

Solofill and Ekobrew differ slightly in shape and size, but both are compatible with Keurig.

Eko Brands recently moved production to Woodenville, Wash., from China.

Ekobrew’s creator, Ron DeMiglio, had his own coffee-roasting company and developed the system so his customers could continue using his coffee in a single-cup system.

“That [single-cup] category is not going to go away anytime soon,” Shaffer said.

Green Mountain points out that it has its own reusable cup system, called My K-Cup, which is designed for consumers who prefer to pack their own.

In addition, a new generation of Keurig brewer debuting this year, called the Vue, uses a different cup — opening the door for future growth. The PP base of the Vue cup can be separated from the filter and lid, for easy recycling. Vue cups are not compatible with existing K-Cups. The Vue system can also brew more-complex coffees, such as a latte, using two Vue cups — one with the coffee and the other for steamed milk.

Keurig is far from the only single-cup product; there are competitors using their own cups. Whirlpool Corp.’s KitchenAid brand is also rolling out a one-cup product with a reusable filter.

And more varieties are likely to be on the way. Green Mountain, Starbucks and Italy’s Luigi Lavazza SpA are working to develop high-end one-cup brewing systems.

Meanwhile, Luzern, Switzerland-based Bodum Group — best known for its French press coffee makers — is debuting a new series of electric kitchen equipment under the name e-Bodum.

  The product line includes a coffee maker with a PP and silicone body that uses a “pour-over” method.

So far, the pour-over system — in which hot water is poured over ground coffee in a cone filter — claims only 1 percent of the U.S. market, according to the NCA.

But then, NCA’s Joe DeRupo noted, the one-cup system had little recognition just five years ago. The association’s 2007 survey showed only 2 percent of Americans would “definitely” buy a one-cup system, while 56 percent “definitely would not.”

This year, such products are on thousands of kitchen counters.