February 8, 2012

The High Cost of the Single Serve Espresso and Coffee Habit

NespressoCapsules.jpg

The NYTimes has a nice little rant article about the high cost of single serve coffee brewers, pointing out that people are paying about $50+ per pound of coffee when buying in a single serve format. Obviously you can get coffee for a lot less than that, even darn good coffee; the kind of micro lot coffee that would blow your socks off. Most people either get it or they don't - it's about consistency and convenience. It's not about amazing nuances in the cup that you can get from freshly roasted beans, and it's not about low cost, even though you can rationalize that you are wasting less.

Massive Revenue and a Total Shift in the Industry

What's interesting are a few tidbits in the article. Nespresso sells only 8% of the coffee in the world, as measured y weight, but 25% of the dollars spent on coffee is for Nespresso; that is a stunning number. I didn't realize that the franchise was that big.

Keurig sold 4 million brewers leading up to the Christmas 2012 holiday, and about $715Million in K-Cup coffee packs. Can you imagine what it will be next year after those 4 million brewers get cranking? Sure the there is a patent expiration coming, but at a couple of cups a day per brewer, that's about $300+ million in retail sales for Q4 2012. Can you say $1 Billion in retail sales per quarter?

The big market shift is in the reframing of the cost for coffee. Older people think in terms of cost per pound, can or brick bag of coffee. Younger people reframe the cost of coffee versus what it costs at the coffee shop. So while $50+ per pound is a lot versus that bag of whole bean at the store, $0.60 per cup versus that $4 Latte I had yesterday is cheap.

Competition for Keurig and Nespresso

Finally, what these folks need is a little competition for their brewers. That's coming.

I mentioned the patent expiration that Keurig is going to deal with as competitors may be able to make dents in their installed base of brewers.

Also good news for Nespresso fans too; Amazon is bringing Ethical Coffee capsules to the US later this year. Should get interesting as this maker of Nespresso compatible coffee capsules must be gearing up to take a dent out of this market, where Nespresso has a toe hold, but Keurig has the emerging standard locked down.

Read more on Single Serve Capsules at the NYTimes

Read More in: Keurig & K-cups | Nespresso

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Posted by Scott Martin at February 8, 2012 7:11 AM
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