With Keurig Green Mountain (UNKNOWN:GMCR.DL) reporting fiscal 2015 first-quarter earnings results next week, investors undoubtedly will be watching for three things inextricably linked to the future of the coffeemaker and java pods manufacturer:
- Continued growth in single-serve portion packs
- Further market traction for the new Keurig 2.0 brew system
- Updates on the progress of its new cold beverage system due out later this year
Whereas Keurig generated $4.7 billion in revenue for fiscal 2014, realizing net profit of more than $597 million, that was driven primarily by the 9.8 billion portion packs it sold, which accounted for 76% of total revenue. To revive its profit margin, which evaporated after patent protection on its older K-Cup coffee pods expired, the company is counting on the new brew system. And in an attempt to expand into new markets and gain new business, Keurig is counting on its new at-home soda system developed in partnership with Coca-Cola (NYSE:KO).
But as Keurig rolls out these strategic initiatives, the company and its investors might be missing out on the next big growth area for DIY beverage makers.
Soda sales have gone flat
Looking for new customers is certainly a worthwhile endeavor, but soda might not be the right niche. DIY soda maker SodaStream International (NASDAQ:SODA) is finding the at-home market might already be saturated. Sales of new brewing units have turned dramatically negative, and last quarter part of SodaStream's consumables business turned south as well, with flavor sales dropping 8% from the year ago period. At least CO2 refills remain strong as sales were up 10% year over year.
A Coke-backed machine might give Keurig Green Mountain a bit of an edge in the market, but it's hard to see this offering the coffee company an explosive new opportunity, particularly as the jury is still out on SodaStream's own partnership with PepsiCo (NASDAQ:PEP).
Which is why Keurig should go in a completely different direction, one for which there could be large untapped demand just waiting to be captured.
I'll drink to that
Amid the big hats, roses, and mint juleps during the Kentucky Derby this March, thoroughbred racing guests in the new owner's suites will test out an automated mixed drink system called Monsieur bartender that could change the at-home market for good.
The artificially intelligent robotic bartender can make up to 300 different types of cocktails from eight different ingredients. Using a cloud-based interface, the Monsieur machine can determine who is home and allow users to customize drink orders using 10 preloaded themes. Using a smartphone app, you can even remotely order drinks and be alerted when your ingredients are running low.
Simply put, Keurig Green Mountain should seriously consider buying this company or one of its rivals.
Whereas making soda at home is a fun diversion, there's a substantial knowledge and skills gap when it comes to making mixed drinks -- as well as a major intimidation factor to getting the drink's taste just right. Being able to effortlessly mix a cocktail properly ought to find a large market among would-be mixologists.
Local Kentucky news reports say the Monsieur system is already undergoing testing at several NBA arenas, and that it could spring up at a number of other sports venues after its Kentucky Derby debut.
But why not the home market, too?
According to a new report from the market researchers at just-drinks and IWSR Insights, the most recent data shows global sales of pre-mix drink packages rose by 6.3% in 2013, which is a new record high of 370 million nine-liter cases. The U.S. is the largest market for ready-to-drink, or RTD, mixes and enjoyed a "particularly impressive" 17% jump in sales, according to the report. Between 2008 and 2013, U.S. RTD sales grew by a 9.6% compound annual rate.
These data indicate that consumers are looking for an alternative to mixing cocktails themselves. But the Monsieur system doesn't come cheap. Its AI bartender starts at $3,999, meaning the market would initially be limited.
That could make Monsieur rival Somabar a better bet. Its robotic bartender -- which it even bills as the "Nespresso for cocktails" -- is geared specifically for the home user and promises to be significantly cheaper after being put into production. You can pre-order one now for just $429 from Somabar's Kickstarter campaign.
Somabar even seems to be pursuing a Keurig-like strategy by creating "pods" for the liquor and hoping to license them to liquor companies.
Considering the market opportunity present in spirits, especially in mixed drinks and ready-to-drink packages, and the slump soda is experiencing, Monsieur or Somabar could be very attractive partners or acquisition targets for Keurig.
The coffee company reported having over $760 million in cash sitting in its bank account at the end of last year, and buying out these upstarts might not even make a dent in the balance. Regardless of what Keurig Green Mountain reports next week with its earnings, venturing into adult beverages would be a development all investors would be happy to toast.
Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Keurig Green Mountain, PepsiCo, and SodaStream. The Motley Fool owns shares of PepsiCo and SodaStream and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.