Starbucks’ Keurig exclusivity ends as Keurig signs deal with Peet’s
By Angel Gonzalez
SEATTLE Starbucks Corp. agreed to give up its right to be the exclusive purveyor of "super premium" coffee to Keurig Green Mountain Inc., as the maker of the Keurig K-cup brewing system devises new strategies to fend off a recent surge in competitors in the burgeoning market for single-serve coffee pods.
Keurig saw important intellectual property licenses protecting the K-cup expire in 2012. Since then, rival coffee producers have been manufacturing pods compatible with the best-selling brewing system without paying license fees to Keurig.
Starbucks has been an important partner for Keurig, launching licensed K-cups in late 2011, and last year signed a five-year agreement that allowed Starbucks to add more brands to its K-cup line. Through the end of last year, Starbucks had shipped more than 2 billion K-cup pods.
The companies announced Friday that the deal was amended to end Starbucks' exclusivity at the top of the line of K-cup's products, in exchange for "improved business terms" and the opportunity to market a wider variety of pods.
Also on Friday, Keurig announced it struck a new deal with Starbucks rival Peet's Coffee & Tea Inc., which broke into the single-cup pod market seven months ago. Financial terms were not disclosed, but Keurig will distribute licensed K-cup packs for coffee and tea.
Sales of coffee made in single-serve brewing systems barely existed five years ago but now account for more than a quarter of every dollar Americans spend on coffee to drink at home. The category, led by Keurig, is growing quickly, even as others challenge its dominance.
Keurig executives have said that unlicensed K-cups have taken 14 per cent of the market. To counter the growth of these often-cheaper rivals, Keurig is launching a new version of its brewing system and also seeking to lure unlicensed K-cup makers into becoming licensed partners.
It's now been 30 years since the first espresso machine was installed in a Starbucks store, and it was obvious to me in short order, simply by observing employee and customer behavior, that once coffee made on the spot, from freshly-roasted and just-ground beans, was "in the air" all other means of brewing coffee would be relegated to, at best, second-class status. The problem was - and is - that the espresso machine even without the uniquely American problem of obscene sizes and far too much milk, is an ill-suited vehicle for brewing coffee that clearly and acccurately reflects country-of-origin flavors, as opposed to those that are the result of extreme concentration of the beverage and degree of roast.
The Clover has come and gone, joining The Coffee Connection in the list of things Starbucks purchased only in order to keep them from flourishing. The Steampunk is no Clover replacement, ditto with the Blossom, and while I love the Aeropress and Clever dripper I don't think there are enough decimals at my disposal to measure how small their current as well as potential future market share might be. We really need someone from outside of coffee to invent the iPhone of single cup brewers, for both commercial and home use (the Trifecta seems to be the only noble failure along these lines, suffering from excess complexity and, sadly, guilt by association with a now-innovative company that historically was one of the worst laggards when it came to addressing specialty coffee needs).
There's room for many approaches, but I hope one of the take-aways is that if those of us who really love and care about great origin coffee don't make it easy, convenient and affordable for the consumer to brew it - and instead work hard at making the simple seem esoteric and what should be inexpensive and easily repeatable into something only the rich can afford - we will be pushed further to the margins of the marketplace. Already (as I pointed out in my previous piece on the Sprudge article) the supposed cutting-edge of specialty coffee is talking only amongst itself, while the roasters mentioned in this article just go on making money hand over fist meeting actual consumer needs.
Now because Starbucks and Peets roast dark and Green Mountain never pursued excellence even in its pre-Keurig days it may be easy to see the current state of affairs as pod-based mediocrity, but how long before someone comes along and puts the best of today's leading Third Wave offerings into K Cup or Nespresso form? These are companies that have already taken on major venture capital money and whose supposed brightest prospects are in ready-to-drink bottled beverages. Put their top 3 blends and seasonal single origins in K Cups and you can probably stop building all those expensive retail stores. The newer Keurig brewers solve the dosage and water temperature issues of the first generation, and as for Nespresso, their technology is at a whole different level, as shown by the (much lamented by some) fact that they are the dominant force in 3 Star restaurants in Europe. And heck, all the coffee really needs to be is better (as judged by the consumer) than a tepid $3-5 cup brewed excruciatingly slowly in a Hario by a barista who wants to educate rather than please them. Not a high bar, I'd say.
Nespresso has already come out with a new machine call VertuoLine, that will brew single serve coffee. And they have already been offering a blend of two Ethiopian Arabicas called 'Bukeela' for a few months now.
When I lived in Europe, most of our French and Italian friends prefer Nespresso style coffee. These are people who often dined at places like L'Arpege, L'Atelier or the likes. They do not like the Scandinavian acidic style coffee that Third wave places in America are emulating.
Financial Times (FT.com) has an article that may be of some interest to you called "Nespresso has shot at larger coffee sale" by Shannon Bond on 19th Feb. 2014.
Thanks very much for sharing this info! The Etihopian certainly sounds delicious, and I was very interested to read about the VertuoLine machine.Delete
This all really does highlight the huge gulf between American and European coffee drinkers at the high end of the mass market. I have great respect for Nestlé's capabilities, and I don't think it's any accident at all that your friends in Europe, along with something like half of the chefs in 3 Star restaurants there, prefer Nespresso.
I've posted about all of this thanks to you (had to use Bloomberg rather than Financial Times since they have a pay wall set up).
Oh god, here I go again . . . .ReplyDelete
I spent 5 years in the trenches of wholesale customer service in the specialty coffee biz in the Bay Area, before the 3rd wave thing happened. I visited as many as 250 different retail outlets and restaurants, including some of the highest-rated places in the US. Very, very few of these customers paid the simple, necessary attention to the absolute basics of making good coffee in order to consistently offer their customers anything better than what those customers could get at the 7-11, or at Starbucks.
Here's the Inconvenient Truth: No matter how great the coffee is you are buying, roasting, brewing, selling, if you don't do it right, it won't taste for s**t.
If 4 star restaurants can't get it right, who can? I watched as more and more and more small coffee places came and went, making mediocre brew with the coffee I was selling them. I drank the coffee I was selling them at home, in a Melitta filter with water heated in a pot from Mexico, the paint on which was most likely full of lead, hence my general mental state these days. The damn coffee was excellent. I asked myself all the time why people in the supposed coffee business couldn't make a good cup to save their very businesses. And I think this is the crux of the crisis for true Specialty Coffee -- the consumer was told that Place X had great brew, and the consumer visited Place X and got swill, and the consumer said to herself, "Why is that worth three bucks, when a bigger cup of brew at the gas station tastes better?".
I've had friends over for a cup, and they stand amazed at how I can get a great cuppa from my stupidly simple setup, when they just can't seem to get the same results at home. Keurig is just doing what the market does: filling a need for consumers. I hate to think the only people on the front lines of making great coffee available to the average Josephine are the hipsters with the vintage Probats and the vinyl records. I actually think the way ahead is to go back: not to some hazy nostalgia about when A. Peet was 35, but to when great coffee was all around us and all we needed to do differently was to prepare it well.
Exactly Robert, and as you well know the high-end restaurants are among the least likely to do a good job. I've had better luck in high-volume breakfast places.ReplyDelete
As your home brewing experience makes clear, it all comes down to knowing the basics of proportion, grind, water and freshness. That's elementary school to espresso's grad school, and most restaurants are attempting espresso having failed kindergarten. I think that explains a lot of the success of Nespresso in high end places: it's simply better-tasting than what they can do with equipment requiring a modicum of skill and training.
I wonder if this will have a major effect on the Keurig coffee pods?ReplyDelete
OsO-Pa the link you provided was to one of many sites selling Keurig-compatible pods. Clearly Green Mountain is hoping their new 2.0 machine will make a major dent in the use of such "unauthorized" pods.ReplyDelete