Keurig Essay Example

and roasters thought that the coffee machines will never able to work flawlessly. In late 1994, Dunkin Donuts agreed to purchase two prototype brewers for $15,000.

Dunkin Donuts believed that the Keurig's idea was promising and they needed a machine for non-store settings. This gave Keurig a platform to soon be called as a company. In 1994, Keurig got the patent and came up with a prototype. Keurig received small funding from Food Fund that helped them to create handful of higher quality brewer prototypes. Keurig presented the business plan to Green Mountain Coffee Roasters, a premium coffee producer, they wanted to do business with them because that will make them earn lots of rewards. Green Mountain Coffee Roasters agreed to get into he business with Keurig only if they allow them to use their own brand name coffee products. In 1995 Keurig got financial funding of $1 million that gave MDT (Memorial Drive Trust) and Food Fund 45% equity stake in the company. Ian Greenwood was good with product ideas but lacked in management skills because of which he was transferred from CEO to chief engineer responsible for development of reliable brewer and a packaging line capable of mass producing K-cups. And Peter Dragone became the new CEO. In 1996 MDT invested another $1 million in the company that gave them the ownership of 58%.

In 1997 when Nick Lazaris took over leadership of the company discovered that the company was unable to meet the deadlines to launch neither the brewer nor the packaging line was ready. Nick Lazaris along with other board of directors decided to outsource more of the development work for both brewing

and packaging line. Sweeney who always worked with Greenwood describes his ideas to be great however difficult to be implemented. Further structural changes were made in the organization looking at the delay in meeting the deadlines. Greenwood was moved to R& D and Sweeney was the new head of engineering.

However, they still felt it was difficult to work with Greenwood ideas and hence a major decision of firing Greenwood was taken by Dragone. In 1996, Peter Dragone decided to move on as well, and Kernan, explored the idea of getting a new for which he took an outside help and Nick Lazaris was appointed for the position, with the background in marketing and manufacturing industry. Nick Lazaris with other board of directors assessed overall business model and decided to outsource more of the development work on both brewer and packaging side.

Keurig evolved from its traditional away-from-home, business-to-business (B2B) product offering, served through KADs, to a new line of at-home, business-to-consumer (B2C) products. Keurig contracted ePartners, a Microsoft-based software and services consultancy, to design and implement a system consisting of an integrated suite of products. The complete solution included a system based on Microsoft Dynamics GP(formerly Great Plains), Microsoft Commerce Server, The Great? Plains Siebel Front Office, and Microsoft SQL Server.

System included a highly customized, easy-to-use, and professional B2B and B2C e-commerce site with full integration to Great Plains and Great Plains Siebel Front Office. The hosted nature of the system allowed Keurig to keep IT costs low, maintain high availability, and focus on selling Keurig systems. The IT system served as the foundation for Keurig’s ongoing business and allowed Keurig to keep pace with the

tremendous growth it continued to experience. The Green Mountain Coffee was good with their prestige, channels, manpower and marketing experience, Keurig came into an agreement with them in 1997.

Keurig kept the licensing for K-cup that gave them four to five cents per cup almost pure profit. This plan gave Keurig good profits, cash flows but lower sales. GMCR and Keurig sold the system through select distribution channels. The system featured the single-cup Keurig brewer and eight varieties of Green mountain coffee, including blends, flavored, decafs and estate coffees. Keurig’s K-cup packaging guaranteed that each cup of coffee was as fresh as “the first cup of coffee”. Keurig divided the market into three categories: office users, f ood service establishments and household.

They wanted to target first two categories before launching into the household sector. Office Coffee Systems also called OCS were first placed at the Thomas H. Lee, Goldman Sachs’ Boston Office, a Toshiba manufacturing facility and the Executive Educational building at the Harvard Business School for testing. Office Managers thought OCS would bring enhancement at work. Instead of running out of workplace for a hot cup of coffee every chance they get, now the employees can stay at their work desks and can make the coffee per cup in 30 seconds. It involves less time, low wastage, portion pack brewing and easy clean-up, less maintenance.

All these features made customers ear their premiums per cup of coffee. The new OCS had advantages over the traditional ones. Even though they were bit more expensive, the old systems had interchangeable filters that employees usually took home. Keurig were looking out for ways to give incentives both to the

distributors and the customers. Distributors developed policies to give away free of charge brewers to their clients if they committed to an OCS service contract. Marketing was another key ear to target in order to reach the ultimate customers.

Keurig decided to give demonstration at the offices and requested the distributors to leave the machines there for few days for both mangers and other employees to test it. Other markets that best suit Keurig Coffee machines were the restaurants with low coffee sales. The idea was coffee made on demand. Brew coffee after the order is received also gave the chance to restaurants to present different flavors. GMCR started Keurig’s patented container, the K-Cup. Distributing the new single-cup Keurig premium coffee system to office coffee service and food service providers in 1998.

The idea of brewing coffee per cup was not feasible for the restaurants with higher volume of turnover. This was based on negative feedback received from Dunkin Donuts, that the brewing took long and could not reach that taste. That helped them reach a conclusion that restaurants with fairly low demand for coffee will be a strong market. The brewers and coffee were usually sold to foodservice distribution and then placed in restaurants under variety of financial arrangements like purchase, lease, long term service contracts, etc.

Green Mountain sometimes sold their products directly to restaurants accounts. Memorial Drive Trust (MDT), an investment advisory firm, had been the primary venture investor in Keurig since 1995 and led Keurig’s board of directors. Keurig wanted to enter the consumer market, but MDT the major shareholder in the company projected two to three years for consumer version of k-cup. Even

though there was a lot of potential in the consumer sector, Keurig had incredible commercial side and they wanted to make sure to execute that well. Keurig was looking for approximately $100-$150. 0 for the brewer expensive than all the other brands currently sold in the market that involves huge engineering challenges. Even to sell larger numbers of such expensive brewers might be higher hurdle. There was no connection between where to buy the brewer from which coffee to buy and from where? In the new OCS customers sign contracts between equipment and coffee. Keurig had number of ideas to connect the gap between the coffee and equipment in the consumer market by selling brewers and K-cups including department stores, gourmet clubs, specialty coffee stores and the internet.

Keurig had a lot of competitors among the few were: Filterfresh: It was $60 million Company, kept fresh ground coffee in covered chambers inside of its brewing machine. The concept was if someone wants the coffee a few grams of the coffee grounds injected along with hot water into a brewing cell. Even though the coffee made was fresh but still the taste gets stale as it was sitting in the hopper due to exposure to oxygen and humidity. The cost of the brewed coffee cup was approximately 29 cents. Cafe System 7: The machine had variety of options of brewing different types of coffees.

The unit was capable of making cappuccino, expresso and mochaccino. It involves a lot of cleaning and maintenance, the cost of producing brewed coffee per cup was 22 cents. Flavia: The leader in portion pack brewing technology was able to produce the brewed cup

of coffee in 23 seconds for 39 cents. Their portions contained 6-6. 8 grams of coffee, once the coffee is brewed then deposited used packets in a waste chamber. This company was not that desperate to really find out the other ways of promoting their brand so Keurig didn’t see them as critical. Flavia had 362,500 systems in place in the U.

S. as of last year, while Keurig had 378,420. "Everyone knows Keurig from the home marketplace," says Steve Serino of BostonBean Coffee, which distributes both. "But Flavia is focused on becoming the leader in the office. " Keurig was expecting to raise $4. 5million in 1998 when they started seeing problems from their own vendors. Manufacturing Technology Systems (MTS) was developing the packaging line for the mass production of K-cups. The CEO of this company demanded $180,000 on top of $700,000 that was fixed in development and production contract first unit deliverable.

They claim it was Keurig’s design modifications during development made them incur additional expenses. Keurig had another challenge of finding the new manufacturer for their packaging lines as MTS kept quoting higher and higher prices. Keurig’s needed two more packaging lines to support the installed base of brewers they projected for the upcoming months. In order to keep the demand from the customers, they started looking for other options for find the new manufacturer. The top few were: Pilgrim: this Company lacked in internal machine shop.

If they needed something from outside shop it might take days to get the parts. In order to give them the contract Keurig had to push dates for next deliverables by two months so that they can develop

engineering schematics and purchase some new production equipment. Quantum Industries: The Company was financially instable and was located 1500 miles away. If contract given to them the dates will push to three months longer than the original plan even though they claim to not only reverse engineer the first packaging line, but also the space to build several machines simultaneously.

Amalgamated Technologies: They can take up to four months longer than all the other vendors to produce and deliver the next packaging lines. Kernan and Lazaris needed to act fast as a lot of time was spent attracting the investors from Minnesota. Also at this point they needed to assess how the MTS issues will impact the new level of funding. Keurig at this time faced challenges from its suppliers. There regular supplier was squeezing them for money and the management had concerns over the quality delievered. This made them look out for a new supplier. Keurig partners wanted a supplier who would work with them as a partner not as a vendor.

Conclusion. In 2002 article, Nick Lazaris was quoted as saying: “Keurig has not had, nor does it expect to have any single shareholder owning a majority of Keurig’s stock. GMCR will be joining Van Houtte and Memorial Drive Trust as one of the Keurig’s largest shareholders. Led that has served as the lead venture investor in Keurig since by Memorial Drive trust, a U. S. based profit-sharing plan 1995, Keurig’s Board of director remains fully in control of Keurig’s business strategy, and no roaster or other commercial business partner will have a seat on Keurig’s board of Directors. 1 Nick Lazaris defended Keurig’s independence

from roasters in a letter to Keurig’s distributors and other roasters: Our core strategy remains unchanged: we are committed to a multi-roaster strategy that relies on strong relationships with selected gourmet coffee coasters who take a great deal of pride in the coffee consumption experience that supports the meaning of their brand to consumers.

EXPANSION

Keurig offered several other? North American K-Cup brands as of year-end 2006: Diedrich, Gloria Jean’s, Coffee People, Timothy’s, Emeril’s, Van? Houtte, Bigelow, Tully’s, and Twinings.

In June 2006, GMCR completed its acquisition? of Keurig for $104. 3 million. As of 2006, more than 1 billion cups of Keurig Brewed coffee and tea had been consumed since Keurig launched in1998. In January 2007, Keurig, Inc. , and Caribou Coffee,? the second-largest publicly traded gourmet coffee company in the United States in terms of number of retail? stores, announced a partnership to market Caribou’s gourmet coffees in Keurig K-Cups. In September 2008, GMCR announced an asset purchase agreement to acquire the Tully’s coffee brand and? The Tully’s acquisition was designed to provide GMCR? holesale business with a complementary West Coast brand and business? platform to facilitate future geographic growth and brand? expansion.

Green Mountain Coffee continued to be the leading K-Cup roaster, accounting for 57 percent of K-Cups? shipped in fiscal 2008. ? As of 2008, more than 2 billion? K-Cups had been shipped since 1998. GMCR net sales increased by $158. 6 million,? or 46 percent, as compared to fiscal 2007. Net sales for the Keurig segment were $253. 6 million in fiscal 2008 (including $39. 2 million of intercompany brewer? sales and royalty revenue), an increase of over 188 percent? ompared to fiscal 2007.

As a reseller, Keurig placed K-Cups and brewers side by side in outlets such? as Bed Bath & Beyond, Macy’s, and Target, as well as many? more. Keurig merchandised brewers and K-Cups in over? 16,000 retail outlets in fiscal 2008. GMCR shipped 983,000? Keurig at-home and away-from-home brewers, an increase? of 105 percent over the previous year’s shipments. The number of K-Cups shipped by all licensed? roasters increased 59 percent over the previous year.?

The U. S. annual per capita consumption of coffee was? estimated to be 424 servings, which included in-home and? ut-of-home roast and ground, instant, and ready-to-drink? (bottled/canned) coffee. The total coffee market in 2008? was estimated to be 1. 8 billion pounds, or $19. 3 billion. Keurig’s Social responsibilities: ?*Actively researching alternatives to the K-Cup® portion pack's petroleum–based materials? [Soft Break]* Also conducting a Life Cycle Analysis to help understand the overall environmental impact of the K-Cup® portion pack as compared to the use of a typical drip- brewer.

There are environmental considerations at every step on the road from "tree to cup". By studying the K-Cup®? ver its entire life cycle, we can more clearly understand how and where we can reduce its footprint.? [Soft Break]* Keurig is working to identify the right definition of "environmentally friendly" for all there packaging, including the K-Cup® portion pack. For example it could mean carbon-neutral, made with renewable materials, recyclable, biodegradable, compostable, petroleum-free, all of the above, or something entirely different. They are researching what is possible today and tomorrow, taking into account the current state of packaging technology, consumer preferences, community infrastructure, performance requirements, nd the demands of the marketplace.?