The “sin­gle serve cof­fee” seg­ment is going crazy, or is it just “crazy?” That is the best obser­va­tion that I can make. A few months ago, we did a fea­ture on this very sub­ject and the land­scape that was defin­ing that mar­ket has changed enough to get me think­ing about it again. At that time, it was all about Green Mountain Roasters K-cup and what seemed to be their iron grip on this seg­ment. Not so much anymore.

Can Green Mountain con­tinue to be the pret­ti­est girl at the dance, or is there a new kid in town? It looks like in this case “the first” may not nec­es­sar­ily be “the win­ner.” Taking into account that the in-home brewed sin­gle serve seg­ment only rep­re­sents 7.5% of the total in-home brewed cof­fee con­sump­tion, and that the Keurig dis­trib­utes pri­mar­ily in North America, there exists a whole world of oppor­tu­nity out there, literally.

When we pub­lished the arti­cle in September of last year, we thought that the cost bar­rier for entry for other roast­ers was too high to allow for the devel­op­ment of new sys­tems to com­pete with the Keurig. We con­tended that the large roast­ers would more likely con­tract with Green Mountain to pro­duce pri­vate label K-cups.

The future of the K-cup has begun to play itself out and…I was right and I was also wrong! Yes, you heard me…Wrong!

Just as I had pre­dicted, Dunkin’ Brands and Folgers have con­tracted with Green Mountain for pro­duc­tion of K-cups with their own labels, rather than do it them­selves. However, Starbuck’s is send­ing strong sig­nals that they fully intend to present a new sys­tem of their own. Howard Schultz said that there is plenty of room for mar­ket devel­op­ment and, with only 80% of 7.5% of the home-brewed cof­fee mar­ket held by Green Mountain, Schultz con­tends that a clear win­ner sys­tem has yet to emerge. In a week that should have been dom­i­nated by the growth news of Green Mountain, Starbuck’s stole their entire spot­light, on what was really only a rumor.

So, where is Green Mountain headed? I believe their best strat­egy is to be acquired by a much big­ger fish, and in fact, they seem to be posi­tion­ing them­selves for just such a pos­si­bil­ity. Their stock is now sell­ing at 265 times earn­ings! This has made them the most valu­able com­pany in the world rel­a­tive to num­ber of shares. Any fish that would con­sider buy­ing Green Mountain would have to be a real whale.

The truth is that all this dust-up over sin­gle serve cof­fee sys­tems is really great news for spe­cialty cof­fee and smaller roast­ers and cafes. As Green Mountain rushes to cap­ture mar­ket share from the big multi-nationals, they become more and more dis­tant from the mar­ket WE talk about. Green Mountain is effec­tively remov­ing them­selves from the Specialty Coffee world we love and cher­ish. The Keurig plat­form sim­ply is not a device that pro­duces fine spe­cialty cof­fee bev­er­ages. By def­i­n­i­tion, lit­tle metal cans of pre-ground cof­fee of unsub­stan­ti­ated qual­ity being brewed with water from a teeny inef­fi­cient boiler and deliv­er­ing a prod­uct with­out enough sol­u­ble cof­fee to meet accepted spe­cialty stan­dards, is not spe­cialty cof­fee. The Keurig style machine, or any other sin­gle serve machine for that mat­ter, is never going to be pop­u­lar amongst folks that want to start the day with a truly great cup of coffee.

So, for whom is this gad­get designed? This shouldn’t come as too big a sur­prise, folks who always have and always will brew cof­fee at home. I know that sounds pretty sim­plis­tic but really, this cus­tomer is an exten­sion of the Mr. Coffee generation.

The K-cup sin­gle serve phe­nom must not be con­fused with tra­di­tional pods. Pods, after all, have served the home, busi­ness, and hos­pi­tal­ity cus­tomer for a long time. The ABCD Pod Manufacturing Company is one of the ven­er­a­ble com­pa­nies in the cof­fee indus­try, so is Fres-co. These prod­ucts are sig­nif­i­cantly dif­fer­ent than the K-cup! Pods are acces­si­ble to small roast­ers and do not require mass-market scale dri­ven sales to cash-flow so there­fore lend them­selves eas­ily to gourmet and sin­gle ori­gin cof­fees. Nitrogen pack­aged in foil indi­vid­ual pack­ages, tra­di­tional pods still hold the promise of a great cup of coffee.

And of course, the mod­ern his­tory of pods began with illy Caffe, the global paragon of qual­ity. Pioneering and inno­vat­ing indus­try stan­dards for the now-familiar E.S.E. pod sys­tem that rev­o­lu­tion­ized the improve­ment of the espresso expe­ri­ence for con­sumers in restau­rants, hotels, and at home, illy Caffe’s efforts to cre­ate stan­dards for the shape and size of pods made access to the machines, and sys­tems that pro­duce pods, pos­si­ble for any roaster, regard­less of volumes.

The K-cup prod­uct and the machines that use them, are appeal­ing for really good rea­sons – ease of han­dling, easy clean-up, on-demand brew­ing, and no left­over cof­fee to be thrown away. This is the epit­ome for the blurry-eyed sub­ur­ban com­muter who is look­ing for an effec­tive caf­feine deliv­ery sys­tem, period. These will still be our cus­tomers. That travel mug of cof­fee from a 10 ounce Keurig machine is not going to last very long on the com­mute, they will still pull in for another cup for the office, and this time they will want it to be more spe­cial. The Keurig is a replace­ment kitchen counter cof­fee maker and will be used the same way – to wake peo­ple up.

I think the Specialty Coffee indus­try has dodged a bul­let with the drive to mar­ket the Keurig down-market. We should all feel very relieved that it isn’t a bet­ter prod­uct and that Green Mountain is a pub­licly traded com­pany, oth­er­wise we could be faced with a prod­uct that really chal­lenges the way we do busi­ness. Instead, Green Mountain is forced to build wider and wider mar­kets and the big guys are bat­tling it out, try­ing to be the first to deliver the ulti­mate home cof­fee brewer, but inevitably not a brewer that pro­duces great cof­fee. That part of the mar­ket is left for us. Thank goodness!

Cheers,