The success of Keurig Green Mountain(NASDAQ:GMCR.DL) and its K-Cup single-serve coffee makers has actually led to Americans drinking less coffee. Coffee consumption in the U.S. will drop this year by more than 1% -- nearly 300,000 60-kilogram bags of beans according to the latest U.S. Department of Agriculture report on the global coffee market. That makes the United States the only country in the top eight java-consuming nations that will experience a decrease.
You can blame the decline on the ubiquity of Keurig K-Cup machines that, in many homes and offices, have changed coffee consumption from brewing a pot to making single cups on demand.
"Coffee pods, the single most influential invention in the coffee world over the past few decades have caught on like wildfire in this country. And when people drink coffee pods, they drink less coffee," explained The Washington Post. This is happening at a time when coffee pod sales have skyrocketed 133,710% in the U.S. -- more than a third of all coffee sold in the country -- according to data from Euromonitor, reported by the paper.
Keurig has made coffee easier and more efficient to consume, but those efficiencies have actually led to lower consumption.
How are we buying less coffee?
The good news for Keurig is that, while we may be buying fewer coffee beans as a nation, we are not drinking less coffee. Prior to the introduction of single-serve machines in the United States -- the vast majority of which are made by Keurig -- Americans made their coffee by the pot with drip brewers.
This is a woefully inefficient system, which leads to a number of problems. In many cases, because people are unsure of exactly how much ground coffee goes in the filter, they use too much. In addition to an unnecessarily strong brew, it is wasteful. A K-Cup uses the correct amount each time.
When brewing by the pot, people also pour a lot of coffee down the drain or end up drinking an extra cup (or three) simply to finish the pot. In some cases, that problem can compound -- especially in an office, where just as the last dregs of the pot have been poured, someone else decides he or she wants a cup.
The inefficiency of the system was good for the people selling coffee. It is a model designed for overconsumption and waste. Keurig has corrected that -- a good thing for consumers but bad for Keurig itself.
Why does this hurt Keurig?
There is a reason hot dogs come 10 to a package, while buns are sold in packs of eight. If you purchase 20 hot dogs, you will end up purchasing 24 buns, which will often end up in the trash. K-Cups eliminate a similar conundrum.
"People used to make a pot of coffee. Now they make a cup," Pedro Gavina, the owner of Vernon, California-based roaster Gavina & Sons, told Reuters. "Right there we're losing the sink as a consumer."
In building a very pro-consumer product, Keurig has actually limited how many K-Cups it will sell. The only waste scenarios with coffee pods are letting them expire -- which many people would not notice -- or brewing a single cup without drinking it.
Good for the company
In many ways, Keurig disrupted the at-home/in-office coffee-drinking market by removing a factor that had benefited coffee sellers and hurt consumers. The chief appeal of the K-Cup brewer is that you can brew a single cup when you want it, without having any waste. You will pay more per cup, but you will consume less coffee, and as a nation, we will purchase fewer coffee beans.
In many ways, the coffee industry had been similar to the fitness market, where many gyms make much of their money from people signing up but not actually using the facilities. You pay for that $19.99-a-month membership and never cancel, because you should be exercising, and the price is not that high.
In the by-the-pot world, it did not matter whether someone drank the coffee as long as it was brewed. Keurig deserves credit for changing that, even though it actually makes growing sales harder for the company.
Now, to sell more coffee, Keurig needs to grow its installed user base and make pods people actually want to drink. That has pushed the company to expand its partnerships and offer coffee across the spectrum from high-end to lower priced options. It is a rougher road for the company, but it puts the consumer first.