Market Currents
A price war could be developing in the K-Cup market, according to retail analyst Howard Penney....
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Monday, September 24, 2012, 9:27 AM ETA price war could be developing in the K-Cup market, according to retail analyst Howard Penney. The buzz is that Kroger (KR) is selling its store brand product at $6, an entry point that could pressure Green Mountain Coffee Roasters (GMCR), Supervalu (SVU), and Safeway (SWY) to trim prices on their single serve offerings.
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I can tell you (as a consultant), that I have seen Keurig machines at various locations, and hardly the majority of consumers seem to have to have the GMCR brand for their Keurig machines anymore.
I have noted at my local Costco, that off brand K-cups sell for 31 cents each versus 64 cents each of GMCR's brand. That was three weeks ago. My guess is in a month, that off brand may be 25 cents each. I believe less than half of Keurig users absolutely care that they need the GMCR brand (probably much less), and honestly I have tasted differing off brands and the quality was not bad at all. I can not speak for Krogers brand as I have not tried it yet. There are people out there that drink instant coffee for heavens sake .... do you think if an instant coffee drinker got a Keurig machine for Christmas that they would need to buy GMCR K-s and nothing else? Do you not think it is feasible that an off brand might actually produce a high quality K-cup that was half price of GMCR's brand?
Keep trying to convince yourself that GMCR will not be affected by all the clones coming out, and I will be more than happy to buy back your shares at $7.50 (or less) to cover my short :)
There really is not as much barrier to entry in this particular game as you think and more clones are coming out of the woodwork everyday which will take market share along with pricing structure away from GMCR.
These conversations remind me of the Snapple, Krispy Kreme and, more recently, Crocs conversations, especially with the continued buy recommendations that came out after the stocks tanked.
What does $6.00 mean? each or for a box or 100 K-cups?
I own and operate a Kuerig brewer, I do it because I love the coffee, I have 200 choices, It's available all over and I know the quality. At what price would I change to an unknown, store brand, would .002-.005 cents a k-cup change my mind, would I be happy to give up 200 choices for a Kroger K-cup.
I purchased the k-cup capsule that allows me to load my own coffee and to brew with my kuerig brewer. I used it maybe 10 times, regardless of what coffee I used it didn't compare to GMCR K-cups. It not about cost fellows it's about taste, quality, consistency and 2 cents more will not break me, I'm drinking coffee for fifty cents at home that people are standing in line to pay $3.00 for, give me a break!
To refute you statement "At what price would I change to an unknown, store brand, would .002-.005 cents a k-cup change my mind, would I be happy to give up 200 choices for a Kroger K-cup.".
If you read my post above, using the Costco cost per K-cup and the GMCR 80 count coffee cost (cheapest offering by GMCR), it is 64 cents each. That is a 33 cent difference, or over $26 per box using an 80 count. I'm sure many offices, or home coffee drinkers who drink four cups of coffee a day would prefer to save $26 every two weeks or so on coffee if the quality were similar. Some connoisseurs will continue to buy GMCR brand, no matter what the price, but many will gravitate to the cheaper costing brands. It doesn't take much percentage of users to gravitate to the clones to hurt GMCR. It doesn't help GMCR that Kroger is now at 25 cent per price point - almost one third the cost..
Enjoy your cup of jo.
Clearly there is much more to a coffee purchase than just the price per cup. Brand loyalty is a big factor. Taste and selection are big factors. Convenience is a big factor.
Store brand cola is no threat to Coke and Pepsi. The same applies to coffee.
Recently in Costco instore, clones were 31 cents each. Kroger already selling for less than that.
All their eggs inthe basket are on success of the Vue. They don't make any $ on the brewers, only on the coffee they sell. How long until a Vue clone comes out? And since clones on the K-cup come out of the woodwork long before the patents expired, Vue clones (if the hardware is successful), will be out long before those patents - there are probably simple modifications that can be done to get around them? Maybe, maybe not ... but more chance GMCR will see $7 than $47.