One day everything was normal. The next, the coronavirus was declared a global pandemic and consumer behavior completely changed overnight. And companies didn't know what to do. Would demand be stronger or weaker because of the COVID-19 pandemic? An incorrect prediction would severely hurt the business.
Fortunately, beverage giant Keurig Dr Pepper (NASDAQ:KDP) wasn't flying blind when it came to coffee demand. Thanks to the tech in its newer lines of Keurig coffee brewers, the company had a pretty good idea of how much coffee it was going to sell and appropriately adjusted supply to meet demand.
For more than three years now, Keurig Dr Pepper has been leveraging a panel of 10,000 households using smart coffee brewers. That's just a small percentage of the total -- there are over 30 million U.S. households with Keurig brewers. But the data it gains from these brewers is insightful. The company can see how often they’re being used and how much coffee is brewing in real time.
Keurig Dr Pepper hopes to get smart brewers in the hands of way more than 10,000 consumers. Before the end of the quarter, it's launching its K-Custom Smart brewer, a coffee brewer you can control with your smartphone. Whether you like your coffee hot or cold, strong or weak, small or large -- this brewer does it all. It has buttons on the unit, but you might prefer to use your smartphone to have it brew automatically on a schedule, or change your settings from bed.
These are cool features, but you can only control with your phone by connecting the Keurig brewer to the WiFi, which will help Keurig Dr Pepper gain even more valuable consumer data. The company hopes this new commercially available brewer will be compelling enough to get more people to upgrade to smart brewers.
What can be done with data
In Keurig Dr Pepper's conference call to discuss results for the second quarter of 2020, CEO Robert Gamgort had this to say: "We were using real-time points of consumption data through our Keurig connected panel of 10,000 households to guide our decisions during the crisis. Harnessing what is one-of-a-kind technology in CPG, we've been able to navigate the volatility caused by COVID, making near-real-time decisions to drive strong in-market execution."
Think about what happened earlier this year. States and local governments shut down many non-essential businesses, coffee shops included. Popular stops along the morning commute, like Starbucks and Dunkin', had limited availability. And many commutes weren't happening at all as people began working from home.
Demand for coffee didn't go anywhere. After all, many of us can't make it through the day without our morning java. Demand merely shifted from the coffee shop to the home. But by how much? In the early days, it was impossible for companies like Keurig Dr Pepper to predict.
Without real-time data, Keurig Dr Pepper would have been flying blind. Supposing there was a massive surge in demand, grocery store shelves would be empty before the company had time to adjust production. If consumers didn't find Keurig coffee, they would have simply purchased something else. They wouldn't go without.
This didn't happen. Keurig Dr Pepper had 10,000 data points demonstrating exactly what was happening with consumer demand. The company extrapolated this data to make adjustments as necessary and kept its products on the shelves where demand was increasing. The end result was that pod volume (coffee for the company's brewers) was up 9.5% year over year in the second quarter, and brewer volume was up 11.6% from last year. In short, the company used data to survive and thrive.
Keurig Dr Pepper the tech company?
There's much more to Keurig Dr Pepper's business than coffee, and I wouldn't label it a technology stock just yet. However, this consumer-staples business is clearly leveraging technology to its advantage. Some companies merely make new products; others release product upgrades that increase their competitive advantage. The latter describes Keurig's WiFi brewers and that's one reason to be optimistic about the company's long-term prospects.
Going forward, Keurig Dr Pepper still sees great potential to grow its coffee business. Currently, it estimates its household penetration in the U.S. is at 25%. But the company sees clear opportunity for 50% penetration. This would add about 30 million more households to the Keurig family.
That's a lot of coffee demand to keep up with. But Keurig Dr Pepper will meet it by making data-driven coffee supply decisions.