The Market May Be Souring on Keurig's Coffee and Environmental Impact
Things aren’t looking good for Keurig Green Mountain. [Jared721/Flickr]
The little Keurig coffee pods have become something of an ubiquity in American offices and homes over the last six or seven years, due primarily (ok, exclusively) to convenience. You’ve seen how they work — the pod goes into the sleek-looking machine, the foil on top is punctured, hot water goes through, and you’re left with a cup of pretty mediocre swill and a substantial amount of plastic waste that goes directly into the trash.
The reason Keurig Green Mountain has been so profitable in its lifetime is that it’s based on an inkjet-printer profit model: the consumer purchases a printer that costs $70 or $80, then proceeds to spend many times that on expensive ink cartridges. The cartridges are typically designed to be usable exclusively by that one specific printer model. The consumer is caught in a bit of a bind because, what alternative is there? Not buying ink and having an unusable printer?
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It’s the same with Keurig machines: the cost of machine itself, while not negligible, is nothing compared to what you’ll spend on the actual coffee. By some estimates, Keurig coffee costs roughly $50 per pound, many times what a bag of regular coffee costs. Starbucks’ house blend costs $11.95 per pound. Even high-end roasters like Intelligentsia charge around $18 for a 12 oz. bag, which works out to roughly $23.50 per pound — and that’s for bourgie, single-origin premium coffee.
Then there’s the environmental impact: according to The Atlantic, Keurig sold nearly 10 billion pods last year, creating an enormous amount of landfill waste. While the company points out that the pods are “fully recyclable,” that requires a user to break each individual small pod down into its paper, plastic, and metal components. Given that a person using a Keurig machine can’t take the time to brew a proper cup of coffee, however, demonstrating such environmental fastidiousness would be unlikely, to say the least.
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The detrimental effect of the K-Cup on the environment has inspired many to speak out. Egg Studios created a “Kill the K Cup” video earlier this year, portraying an apocalyptic end-of-days brought about by the needless environmental waste. In true Alfred Nobel style, John Sylvan, inventor of the K-Cup, says he regrets ever inventing the thing.
[Keurig’s five-day stock performance]
Well, it looks like enthusiasm for the K-Cup might be slowly waning. Keurig Green Mountain stock got hammered on Thursday, dropping nearly 10% after the Waterbury, Vt.-based company revealed that customers have been less than enthused about their new, $200 Keurig 2.0 coffee maker. The stock has been getting throttled all week, actually, dropping nearly 20 points in the last few trading days.
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What happened? With so much good coffee available, are Americans finally choosing to make coffee with, you know, real coffee beans and an actual coffee maker? More like, Keurig made the fatal mistake of assaulting good ol’ American freedom of choice with its latest attempt to force third-party K-Cups out of the market, à la the digital rights management controversy of mid-2000s iTunes downloads.
The new Keurig 2.0 locks out cheaper third-party coffee pods. That angered customers, to be sure, though innovative hackers quickly found a way around the restriction. What really angered people, however, leading to phenomenally bad Amazon reviews for the new product, is the fact that Keurig 2.0 locks out its own reusable K-Cups.
[Keurig 2.0 reviews on Amazon.com]
That’s right: Keurig actually makes a reusable pod that allows you to use whatever coffee you like, which is cheaper for consumers and better for the environment. Small wonder that the executives decided to phase out the less profitable My K-Cup, and intentionally design their new Keurig 2.0 machine to not function with the reusable pods.
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The response has been fairly swift, to say the least: sales of brewing machines and accessories are down 23% in the last year and Keurig was forced to lower its 2015 sales forecast, leading CEO Brian Kelley to implore to investors on the company’s quarterly earnings call yesterday,
…we took the My K-cup away and quite honestly we’re wrong. We missed, we didn’t - we underestimated, it’s the easiest way to say, we underestimated the passion that consumer had for this. And when we did it, and we realized it, we’re bringing it back because it was we missed it. We shouldn’t have taken it away, we did. We are bringing it back.
It will not be until the holidays, however, before Keurig is likely to roll out a new My K-Cup that will be compatible with the 2.0 machine. And third-party cups are still a no-no. Maybe that time will give consumers to think; perhaps a slow coffee movement will proceed in the wake of the slow food movement and Americans will eschew the coffee pod once and for all.
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But the Keurig’s groveling statement to you, the consumer, is this: please don’t let us go. Yes, we make bad, expensive coffee, and yes, our pods are wreaking havoc on landfills. But isn’t saving that extra few minutes in your day more important? Time is money, right? Please keep us around. We’ll even let you go back to using your own coffee. We’re sorry. Please?
