The Death of the K Cup

Are we going to see the death of the k cup? Keurig, the maker of single serve coffee saw its stock drop 30% after reporting diminishing sales. Fortune reports as Keurig sales plunge.

In releasing its third quarter earnings after the market closed on Wednesday, Keurig Green Mountain GMCR -29.95% announced some bad news: it’s planning to cut 5% of its workforce. The company has 6,600 full-time, part-time, and seasonal employees, according to its 2014 annual report.

Following the news, shares of the K-cup maker plunged in after-hours trading Wednesday and were off some 3o% in Thursday morning trading.

The company said that the reduction in headcount is part of a “productivity plan” to reduce costs by $300 million over the next three years. Approximately $100 million of that savings is expected in fiscal year 2016.

The cut in costs comes as the company reported dismal sales of its signature products. Sales of its packaged coffee pods, or K-Cups, fell 1%. Sales of brewers and accessories plummeted 26%. The company’s revenue declined 5% to $969 million and net income dropped 27% to $113.6 million.

We wrote recently about k cups in our article, Does Organic Coffee in a K Cup Make Sense? There is a basic contradiction in the equation of selling organic coffee in plastic containers that will fill up landfills and not decompose for thousands of years! However, the more likely case is that single serving coffee is a fad and fads run their course. So, is this the death of the k cup or simply a retrenchment into a smaller market?

Where Do K Cups Make Sense?

This writer loves it when he travels and there is a coffee maker in his hotel room. Here is a case where k cups make sense although we would like to see biodegradable cups. Single adults do not make large or need large quantities of coffee so biodegradable k cups make sense there also. For the family that makes coffee for several people at once give me a pot of boiling water, a cloth filter and freshly ground healthy organic coffee in the right quantity.

Fads Come and Go

CNN Money addresses the k cup coffee fad.

Keurig Green Mountain (GMCR), which sells single cup makers and the K-Cups to go with them, reported disastrously bad results on Wednesday. Sales of both the brewers and pods fell in the second quarter. The company is laying off 5% of its employees.

The stock plunged nearly 30% on the news. It’s now down 60% this year. It’s worth asking if making one cup at a time instead of a full pot is a fad that’s close to peaking.

It seems that Keurig alienated its core customers with its newest machine, the Keurig 2.0. Some consumers balked at the $199.99 price tag. But what really irked caffeine addicts was the fact that the new Keurig could only make coffee with officially licensed K-Cups.

But there is a big cottage industry of cheaper, private label coffee pods that were compatible with older Keurig machines.

Two makers of those cups, TreeHouse Foods and Rogers Family Co., have both sued Keurig Green Mountain and accused the company of anti-competitive practices.

Rogers went as far as creating a “Freedom Clip” that lets Keurig 2.0 customers brew non-licensed pods.

It would seem that the k cup fad is wearing thin and Keurig has hurt itself by trying to corner the market with a machine upgrade that excludes other brands. That, in the end, is probably the reason for the death of the k cup.

Leave a Reply