Keurig Case Study

Introduction: Statement of Problem

In 1998, Keurig successfully launch a single-cup coffee brewing system for use in the away-from-home market which was largely due to the increasing sophistication of coffee drinkers. It was estimated that by 2003 twenty million Americans would be drinking gourmet coffee on a daily basis. In fact, with the establishment of coffeehouses, such as Starbucks, consumers were spending an average of $1.50 or more for a cup of gourmet coffee. And from 1996 to 2000, gourmet coffee sales had increased by 40% in the U.S. at-home market, which persuaded Keurig to develop an at-home coffee brewer designed specifically for the gourmet coffee drinkers. In February 2003, Keurig was prepared to launch its first at-home brewing system. Keurig had invested $700,000 in the development of the two-cup system, but hit a roadblock when Green Mountain Coffee Roasters Inc. (GMCR) asked Keurig to reconsider the one-cup approach for the at-home market. With less than six months to launch, Keurig had some key decisions to make in regards to the price strategy for the brewer and the at-home portion packs, how to market and launch the at-home system, and how to handle the request from GMCR and roasters.

Analyses

In looking at the market and potential customers for Keurig, the total size of the retail coffee market was estimated to be $18.5 billion in 2000 (Exhibit 1). Market research showed that there was a strong appeal for an at-home brewer among these consumers and also showed that in 1996, gourmet-coffee sales were around $2,200 million, and had increased 40% by 2000 to $3,100 million. It appeared that the at-home gourmet coffee market was steadily on a rise, and Keurig hoped to target consumers of gourmet coffee with its at-home B100 model brewer.

In looking at the competition, Keurig has two main competitors in the away-from-home, single cup market, Filterfresh and Flavia. Filterfresh was the first to introduce a single-cup brewer, however the system required regular tending to remove used coffee grounds and reload ground beans into the storage hopper. Flavia introduce its first single-cup brewer in Britain and expanded to Europe and Japan before entering the U.S. and Canada market. Similar to Keurig's system, Flavia focused on the ease of use and offered a variety or 24 coffees in individual, foil-sealed Filterpacks. However, Keurig faced greater competition in the at-home single-cup market (Exhibit 2). Salton and Sara Lee both planned to enter the at-home market and there were rumors that P&G and Nestle were also developing single-cup systems. These competitors planned on selling their products through mass retail and grocery outlets and were proposing a much lower pricing strategy (Exhibit 3). Keurig did not have the resources to compete in the retail market, so it was important for Keurig to be first to market.

In looking at Keurig, see Exhibit 4, a SWOT analysis showing the company's strengths and weaknesses. Currently, Keurig used a selective but nonexclusive strategy that expanded its relationships with coffee roasters, which resulted in five roaster partnerships and the largest variety of coffees available with a single-cup system in the market in 2003. Also, Keurig sold stocks to two of its roaster partners, Van Houtte (nearly 28% ownership) and GMCR (nearly 42% ownership). Keurig prided itself in providing an excellence gourmet coffee experience to its consumers, and maintaining the quality of their coffee would be key when they moved into the at-home market. With a limited budget for production costs and marketing expenses, the support of Keurig's roasters would be vital in launching their at-home product.

Recommended Strategy

Based on the market research and the steady upwards growth of the at-home gourmet coffee market, I feel that Keurig should enter the at-home market even though the at-home market is more competitive. In order, to be successful in the at-home market, I feel Keurig should position its system as a convenient,