Where does Keurig Kold’s failure leave the mix your own category?

Just nine months after launch and after an investment of well over $1 billion, US-based coffee pod machine maker Keurig Green Mountain has pulled the plug on Keurig Kold – its mix-your-own carbonated soft drinks maker.

The much-hyped launch was delayed, and then customers just didn’t like the machine. While they seemed to embrace the concept of mixing their favourite drinks at home, they didn’t like the $370 price tag, the size of the machine and how long it took to noisily make each drink.

Announcing the product’s cancellation, Keurig spokeswoman Suzanne DuLong said: “We view our initial Kold system launch as a pioneering execution. We learned a lot – including that consumers are willing to embrace the concept of a system that delivers fresh-made, cold beverages in the home – and we’ll build our learnings into future beverage systems.

“Reimagining how beverages can be created, personalised and enjoyed will continue to guide Keurig’s strategy into the future.”

But will it? Keurig started with coffee and I think it will have to concentrate on coffee, without distraction from now on.

JAB’s global coffee aspirations

The Coca-Cola Company famously became involved in the Kold project in 2014, well before the launch, taking a $2.4 billion stake in Keurig and enabling brands such as Diet Coke and Sprite to feature in the Keurig Kold line-up. But at the end of 2015, Keurig was sold to Jacobs Douwe Egberts owner JAB Group for around $13.9 billion and Coke’s equity stake realised a small profit.

When JAB acquired Keurig, I commented that this was “a huge story, but may turn out to be even bigger when considering JAB’s overall intentions”.

Over the past four years, Luxembourg-based investment company JAB Holding has spent over $30 billion acquiring coffee companies in Europe and the United States, creating a challenge to global coffee leader Nestlé.

JAB’s first challenge to Nestlé came in June 2012, when it took a stake in Douwe Egberts maker DE Master Blenders 1753. A year later it bought the whole company for $10.4 billion and then acquired Mondelēz’s coffee unit for $5 billion. May 2014 saw Mondelēz – the world’s second largest coffee maker – merge with world number three DE Master Blenders to form Jacobs Douwe Egberts.

JAB also owns a number of coffee shop chains in the United States, including Peet’s, Caribou Coffee and Einstein Noah Restaurant Group and, in June this year, JAB acquired the Swedish coffee shop chain Espresso House. Meanwhile, JAB also just bought KrispyKreme, the global ready-to-eat doughnut company.

The Keurig move by JAB adds single-serve coffee into the mix – and that’s the segment that is witnessing the industry’s fastest growth. According to Euromonitor, the international coffee market is expanding at around 5% a year, while sales of single-serve capsules, delivered by machines including Nestlé’s Nespresso and Keurig’s, are rising at more than twice that rate.

So what next? Will JAB make further moves in global coffee? How much of a challenge do they really represent for Nestlé? Watch this space.

So where did Keurig go wrong? Perhaps if coffee is your thing, you should stick to it. And while the incredibly expensive Kold experiment may have left the company talking up future opportunities, it might need to pay more attention to its core activity.

Just as the JAB deal went through, Keurig was struggling with its coffee offering. It was receiving a great deal of criticism for used pods going straight to landfill rather than being recyclable, and there had been a number of problems with the Keurig 2.0 coffee maker being designed to reject third-party K-cup pods. Customers were unhappy and quickly found ways to cheat the technology. By May 2015, the company admitted that sales of coffee brewers and accessories were down by 23% and, while pod sales were up 14%, it was behind target and revenues had fallen.

Enter Lavít – making water more interesting

In October last year, almost coinciding with the Keurig Kold launch, FoodBev reported a new entrant in the mix-your-own machine category – American start-up Lavít.

Established firmly on a health and wellness and green living premise, Lavít set out as a small niche player when compared to the giant Keurig. But Lavít had a couple of tricks up its sleeve. First, its beverage pods were made from fully recyclable aluminium. Next, it was behaving ethically at every level, setting out a charitable benefit from the outset and with an accent with its drinks on health and wellness. Finally –and this is, for me, the clever part – it understood and was intending to affiliate with existing water cooler providers, helping to “make water more interesting” at the touch of a button.

And where is Lavít now that Keurig has cancelled Kold? Well, leaving SodaStream out of the equation, it is the market leader. It has recently announced a partnership with the original “new-age” iced tea maker AriZona – and with the water cooler connection, it now features on DS Waters of America’s www.water.com – the largest water cooler distributor in the United States.

According to Lavít founder Gian Matteo Lo Faro: “Lavít is doing well. We’re gaining market share and customer loyalty. People love the technology. Lavít units were recently purchased by great companies including Anonymous Content, Marvel Entertainment, Pinterest, Gulfstream, Perez Hilton Luxottica, Everyday Health, to name a few. People love Lavít and that’s what is really most important to us.”

I need to point out that DS Waters of America, which I just mentioned, is owned by Cott Corporation, which just acquired the 18-country European water cooler company Eden Springs.
So maybe it’s only a matter of time until we see Lavít crossing the pond. Again, watch this space.

The future of mix-your-own

I don’t think anyone is going to miss Keurig Kold. For many customers it would rapidly have become the bread-maker or foot spa, consigned to the cupboard as a space-wasting novelty.

Of course, the mix-your-own category lives on. At one end there’s Coca-Cola’s Freestyle and PepsiCo’s Spire, which enable mix-your-own in the vending and foodservice arena. For mix-your-own at home, SodaStream leads the way and seems to be constantly innovating. We are still waiting to see if its tie-in with Pepsi to create Pepsi Homemade might see a wider roll-out. And then there’s PepsiCo’s Drinkfinity, which showed great promise but has so far not gained the attention we expected – although its pod system did lead to the development of Gatorade’s hydration-tracking bottle. There are other players too, such as Canada’s Bonne O, but we are yet to see something that really challenges SodaStream’s traditional space.

While pod-based press-button machine success may come for a single-minded company with the right equipment, mindset and offering, the other mix-your-own area we have followed in the past at FoodBev is the liquid water enhancer category. It is my view that the category has peaked and is now in slow decline. Reminiscent of shot drinks, it is a passing fad.

But hydration is important. In a world where calories are being counted and governments are legislating rather than educating, health and wellness is important. For many, water is boring – so I still have great hopes for the mix-your-own category. I’m just not sure we’ve yet seen the perfect solution.