Keurig Green Mountain (NASDAQ:GMCR.DL) has revealed very little about its new cold beverage drink system, aptly named Keurig Kold.
The machine, which makes single-serve, chilled beverages without the use of ice, can also deliver carbonated beverages without a CO2 cartridge. Its development led to Keurig signing a "10-year agreement to collaborate on the development and introduction of The Coca Cola Company's (NYSE:KO) global brand portfolio for use in Keurig's forthcoming Keurig Cold at-home beverage system," the company said in a September 2014 press release (from before the machine's name was changed to the alternate spelling of cold).
In addition to Coca Cola, which holds a 16% stake in the company, Keurig has also made deals for Kold with Dr. Pepper Snapple Group (NYSE:DPS) as well as other brands.
Now, not far from its summer launch, the company held an investor conference [Adobe Flash Player 9 or above required to view this content] to share details of the highly anticipated machine.
Keurig wants to own the home
The launch of the Kold is part of Keurig's goal to have an appliance on every counter and a beverage for every occasion. Its launch comes at the same time the company is ramping up its efforts to grow its business beyond North America.
"Our vision is to become the world's leading personal beverage system company," CEO Brian Kelley said. "The upcoming launch of our Kold machine allows us to expand our reach into more beverage categories, dayparts, and beverage occasions making our Keurig system attractive to significantly more households."
Kelley explained that the company's business model is based on the installed base of appliances and the number of beverages consumed each day. He said that he expects that the Kold will be used more than the company's coffee brewers because it's useful during more parts of the day.
"We expect [Keurig Kold] to revolutionize cold beverage in the home just as our hot platform has revolutionized the coffee and tea categories."
The company sees a big market
As you can see from the charts above, Keurig believes the nonalcoholic cold beverage market is five times as large as the hot drink market it currently serves.
"The cold opportunity for us as a company and a set of categories is very large," said Kelley, who explained that the hot brewers saw mostly morning use while he expected the Kold would be used in all parts of the day. The company expects a slow sales start for the cold system, but expects it to ramp up more quickly than the hot brewers did.
Kelley said that while the coffee machines only sold 21,000 units in their first year, he expects to sell hundreds of thousands of Kold units in the first year due to the company's now well-established brand.
The machine is pretty expensive
The cold-beverage machine, which has been in development for five years, has over 50 patents, the first of which expires in 2031. That work has allowed the company to create a machine that delivers cold drinks with the proper amount of carbonation (which comes from the drink pod) at a 39-degree temperature in about 60 seconds. The machine, if filled with cold water, can make six to eight drinks in a row before it needs a recharge period, the length of which the company did not specify.
All that technology may help the company keep cold-pod sales all to itself, but it has come with a cost. Keurig will be subsidizing the price of the Kold for consumers "to generate the profit stream from selling pods over time," Kelley said.
Even with those subsidies the machines will sell for between $299 and $369, depending on the retailer. That's quite a bit more pricey than the company's hot systems, which start under $100. The company will be selling the machine on its own websites on an installment basis allowing consumers to spread out the cost.
Pods prices will be higher than coffee
Keurig expects to sell Kold pods at retail for between $0.99 and $1.29 -- once again much higher than its coffee and tea pods, which in a broad sense range between $0.35 and $0.60. The pods will be sold in four-count boxes at first with additional sizes being added depending upon demand.
The company expects that its broad range of partnerships with beverage makers -- led by its deal with Coca Cola -- will be a key driver for Kold as it has been for the hot brewers. "Having Coca Cola, the world's largest beverage company, as a foundational partner has been extremely valuable in the planning and development of this launch."
Keurig also hopes to create a new category by introducing mixers -- essentially the nonalcoholic part of an alcoholic beverage. "The purpose behind mixers is to allow us to expand Kold and to participate in more beverage occasions," Keurig Kold General Manager Tara Murphy said. She explained that the category will allow consumers to purchase pods for multiple types of cocktails while taking up minimal storage space in the home.
IoT beverage machines are coming
Early in the presentation Kelley talked about how beverage systems connected via the Internet of Things would change the game.
"In-home systems provide a better way to understand the demand signal in the homes," he said, "once connected brewers give us the ability to understand home-by-home and person-by-person actual consumption." He explained that information garnered this way was more precise than scanner-based info from a store because it records actual consumption. "This will change the relationship between a company's brands and consumers."