Single-cup profitability: Which way is it headed?

Asked why GMCR has not taken legal action against the supermarkets that have publicly announced private label cups designed to work with Keurig brewers, DuLong said GMCR has taken action against the manufacturers of the single-serve packs, not the resellers.

GMCR has not discontinued supplying those supermarket chains with GMCR K Cup packs.

DuLong said the company is taking a “tiered approach to brands and pricing” going forward to protect the profitability of OCS and other “wholesalers.”

She pointed to the new Keurig Vue^™ brewers which are designed to give customers control over the strength, size, and temperature of their beverages. An away-from-home Vue^™ will be available to Keurig authorized distributors in the fall of 2012.

The OCS Vue^™ pack will work with the Vue^™ homeowner brewer, and vice versa, DuLong said. However, the OCS Vue^™ packs will incorporate RFID technology which will recommend brewer settings for specific beverages. This interactive-driven functionality will not be possible in homeowner brewers.

Starbucks Coffee Co. and GMCR announced the expansion of their relationship for the manufacturing, marketing, distribution and sale of Starbucks-branded Vue^™ packs for use in the GMCR’s Keurig^® Vue^™ brewer.

Some OCS operators believe some new soft pod brewers will emerge as an effective alternative to Keurig and other cartridge-based single-cup systems. As noted in the State of the Coffee Service Industry Report, soft pod systems have had a difficult start due to mechanical issues, but some OCS operators believe the newer models are much better and some will give the cartridge systems new competition.

The introduction of unauthorized products for the Keurig brewer has created some concerns among OCS operators who want to maintain their K Cup pack market share.

But coffee suppliers seeking to infringe upon the established K Cup market face a difficult challenge, given the K Cup pack’s dominant market position.

At the same time, the single-serve market continues to evolve, with competing single-cup systems offering alternatives to Keurig. GMCR has recognized the changing market and has responded with new offerings of its own.