Continuing its drive to capture the coffee crowd, Salton (NYSE:SFP) announced recently that it will feature its new "Melitta One: One Pod Brewing System" at the International Home & Housewares Show in Chicago.
The home appliance specialist, which hit it big with its George Foreman grills, appears to view the new appliance as a priority. In its recently completed fiscal second quarter, Salton laid out an additional $13 million on advertising for the coffee machine, a joint venture with German coffee company Melitta Group, and its other new offering, the Westinghouse Beyond Unplugged vacuum cleaner.
The spending, although just 14% of total selling, general, and administrative outlays for the period, caused the company to miss earnings. Salton may see $50 million in sales from both products in the current fiscal year, a modest beginning given its $900 million in revenue last year, but one the company evidently hopes to build on given the promotion behind Melitta One.
Salton is already becoming one of many players in a crowded market. The company was an early mover in the single-serving space when it introduced the Melitta One in the U.S. late last year. Rivals are now close on its heels. The coffee klatch includes Philips Electronics (NYSE:PHG) and Sara Lee's (NYSE:SLE) Senseo, which is already sold in Europe and achieved $110 million in sales in 2003. The Senseo will hit the U.S. market this month, and Sara Lee is already forecasting $200 million in sales for fiscal 2004. Procter & Gamble (NYSE:PG), meanwhile, is hawking the Home Café, in collaboration with Applica (NYSE:APN), Krups, Sunbeam, and others.
Despite all of the current interest in the area, a skeptic might wonder about the sustainability of sales for such products. Salton's Melitta One certainly makes single-serving brewing faster and more convenient, but how much trouble, after all, is it to brew a cup of coffee with a conventional machine? At $0.28 per cup, coffee from the Melitta One is cheaper than the joe available at your local Starbucks (NASDAQ:SBUX), but since when have Starbucks drinkers been price-sensitive?
At the very least, the intense competition from a group of larger players means that the Melitta One probably won't enjoy the kind of success achieved by Salton's Foreman grill line. That's likely to leave a bitter taste in the mouth of the company's investors, who are hoping the company can find another blockbuster housewares product.
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Fool contributor Brian Gorman is a freelance writer in Chicago, Ill. He does not own shares of any companies mentioned in this article.
