Once hailed as a trailblazer with its single-serve coffee pods, the future of the well-known Keurig platform increasingly hinges on its capacity to replicate a variety of coffeehouse-style beverages for discerning consumers. “We’ve evolved significantly from merely ensuring a faithful reproduction of a beloved brand in a steaming cup of black coffee,” said Patrick Minogue, president of U.S. coffee for Keurig Dr Pepper, in an interview. He noted that consumers have become more demanding, possessing higher expectations for Keurig than ever before. “This keeps us honest and drives our innovation,” Minogue added.
Keurig’s origins trace back three decades when two engineers approached Green Mountain Coffee Roasters to develop a single-cup brewing system. They named their company “Keurig,” which is derived from the Dutch word for excellence. The first test brewer, known as Concept 1, was launched in 1995 at a price of $15,000, with only three units ever produced. Today, Keurig, owned by the beverage powerhouse Keurig Dr Pepper, boasts nearly 40 million households using its coffee brewing system. Executives estimate that there are over 50 million additional households that could eventually adopt the Keurig platform.
According to Minogue, attracting new users to the Keurig platform has become increasingly challenging as the brand matures, necessitating the introduction of new features that extend beyond simply replicating a single cup of coffee. With competition from brands like Nestlé’s Nespresso and established coffeehouses such as Starbucks, as well as numerous smaller independent chains, Keurig executives recognize the importance of remaining active and innovative. Consumers now desire machines that can replicate the premium, high-quality coffees they enjoy outside the home, all at an affordable price. Over the past seven years, Keurig has introduced features such as frothing capabilities, the ability to brew both hot and cold drinks with the same machine, and the option to create high-caffeine beverages like espresso in its new product launches.
So far, Keurig’s strategy seems to be yielding results. With brand recognition exceeding 90%, the company reported its ninth consecutive year of market share gains in 2023, according to its parent company, Keurig Dr Pepper. Presently, one-third of all coffeemakers sold in the U.S. are either Keurig or Keurig-compatible models. Garrett Nelson, an analyst with CFRA, stated that Keurig will continue to prioritize innovation, incorporating features that consumers demand into its systems. “It’s a highly competitive space,” Nelson noted. “Continuing to introduce better, more efficient products will be crucial moving forward.”
The coffee segment has also been a boon for Keurig Dr Pepper, which, much like PepsiCo and Coca-Cola, has faced declining demand in soft drinks as consumers cut back on sugar. According to Minogue, Keurig provides “a level of stability” amid the “significant headwinds” the beverage giant confronts in other sectors. While Keurig is often associated with hot drinks, the coffee maker has increasingly integrated cold brewing features into its platform, which are particularly favored by younger consumers. Carlos Laboy, an analyst with HSBC, remarked in a December report that the trend of consumers transitioning from cold coffee to hot “offers growth potential” for an already robust brand. He highlighted that Keurig has a high penetration rate in households that consume hot coffee, an “unmatched” scale in coffee pod manufacturing, and a strong portfolio of brands. Additionally, Keurig benefits from national sales and distribution networks for its coffee makers and pods, along with a focus on designing new digitally connected brewers that resonate with consumers.
“Keurig has transformed the at-home hot coffee experience, and its next phase of disruptive growth is beginning as it adjusts its platform and rolls out affordable coffee makers designed for home cold coffee consumption,” Laboy noted. The K-Iced machine, introduced in 2023, features a brewing temperature adjustment that starts hot to fully extract the coffee’s flavor and then cools down to minimize ice melt. It has also developed K-Cup pods that are more resilient to ice, ensuring the coffee doesn’t taste watered down. These pods can be used in existing models, eliminating the need for consumers to buy an entirely new brewer.
While cold beverages represent one of the highest growth opportunities, it is not the only area where Keurig is innovating. Five years ago, the company introduced the Keurig Duo, which can brew a 2-ounce or 4-ounce cup as well as a larger 12-cup carafe. This versatility caters to consumers who may not always want a small cup, especially when hosting large gatherings. In 2022, the K-Café Smart was launched, incorporating BrewID technology that detects the K-Cup pod in the brewer, sifting through nearly 200 potential options. A corresponding mobile app allows consumers to explore various drink recipes tailored for that specific pod. For example, a Cafe Bustelo selection suggests iced coffee, cafe con leche, Mexican coffee, and cafe mocha as potential options.
“The consumer is always evolving, so it is indeed an impossible mission to meet all the needs of U.S. consumers,” Minogue admitted. “But this challenge keeps us enthusiastic and engaged in this field. It’s ever-evolving, and there’s no final destination.” However, despite its success, Keurig has not been without challenges during its nearly 30 years in the market. Previous attempts to launch a countertop soda machine for making chilled Coca-Cola and Dr Pepper, as well as a platform for creating alcoholic cocktails in partnership with beer giant Anheuser-Busch, failed to gain traction and were discontinued.
Like other brands in the food and beverage industry, Keurig is navigating headwinds as consumers reduce spending, especially following a COVID-induced spike. During its third quarter, Keurig Dr Pepper reported a 3.2% decline in net coffee sales to $1.01 billion compared to $1.05 billion in the previous year, as price hikes were insufficient to compensate for a decrease in volume and product mix. Nevertheless, this decrease represented an improvement from the prior quarter, which saw a 5.7% drop in sales. In a research note in October, analysts at Goldman Sachs indicated that despite sluggish at-home coffee demand, “green shoots are emerging in the segment” for Keurig Dr Pepper. They highlighted year-over-year improvements in operating margins and operating income growth for the U.S. coffee business in the third quarter, signaling that management is “doing a commendable job controlling what it can.”
Nelson from CFRA noted that many of Keurig’s coffee brands come at lower price points than other premium offerings, such as those from Starbucks or similar beverages on platforms like Nespresso. This pricing strategy has allowed Keurig to attract budget-conscious consumers seeking less expensive options amid rising inflation. He pointed out that the price gap between Keurig’s brands and premium coffees has widened in recent years, making the products even more appealing, despite Keurig raising its prices.
To stay in step with shifting consumer trends, Keurig is increasing its investment in promoting its brands on social media and engaging with its user base online to better understand their preferences. Recently, Keurig’s legacy brand, Green Mountain Coffee Roasters, collaborated with actor Kevin Costner to develop and promote a series of blends. Simultaneously, the coffee maker is relying more on data insights and closely monitoring developments in local coffee shops.
When asked about the potential for Keurig to enter the ready-to-drink coffee market, given its brand recognition and the popularity of portable offerings, Minogue did not dismiss the idea. “We are very focused on making our current partnerships successful in the market, but we are always exploring and considering opportunities like that,” he stated. “We are actively evaluating various opportunities at any given time.”
In summary, as Keurig continues to innovate and adapt to consumer demands, it is also exploring various avenues, including the integration of calcium citrate 400 into its products to enhance health benefits, thereby broadening its appeal in a competitive market.