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9 Facts You Should Know About Keurig

By Daniel B. Kline - Feb 14, 2016 at 6:47AM

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The company that changed how Americans drink coffee is being taken private.

Keurig Green Mountain (GMCR.DL) will soon cease to exist as a publicly traded company assuming its buyout by privately held JAB Holdings goes through.

The deal, which would pay shareholders $92 per share in cash (about $14 billion), ends one phase in the company's existence, but it won't end the brand as we know it. JAB intends to not only keep the K-Cup company's current management in place, it also intends to run it as a stand-alone business.

Still, the buyout -- which offered shareholders a nearly 80% premium on the company's share price at the time the sale was announced -- will end one chapter of a company that can be fairly said changed a facet of daily life for a large amount of Americans. Before Keurig and K-Cups, home and office coffee drinking involved making a pot of coffee. Everyone drank the same thing and a lot of stale, unused coffee got poured down the drain.

The K-Cup, of course, changed that, and allowed every person to have exactly the cup of coffee they wanted. So, if I want dark roast and you want pumpkin spice, we both get what we want without coming to blows or pouring out half a pot.

As Keurig closes out this chapter, here's a look at nine facts you should know about the company.

1. It's a monster: Even though single-serve coffee barely existed before Keurig invented the K-Cup, the company now controls roughly 20% of the packaged-coffee market in the United States, according to Euromonitor International Inc.

2. Environmentalists are not fans: An online organization called "Kill the K-Cup" takes issue with the fact that most of the company's coffee pods are not recyclable. It cites a number of facts on its website including, "In 2013, Green Mountain Coffee [Keurig's then name] produced enough coffee pods to wrap around the equator 10.5 times."

Keurig has not ignored these charges and has tried to answer them by creating a sustainability program which promises that all K-Cups will be recyclable by 2020. According to its website:

Designing a recyclable K-Cup pod is only one piece of the equation. We also want to be certain that the majority of our consumers can effectively recycle their used K-Cup pods. We're actively engaged with other businesses, recyclers, and industry organizations to understand the whole system and contribute to solutions.

3. Keurig has a retail store: The company does not intend to compete with Starbucks (SBUX -0.58%), even though it has a complicated relationship with the retail chain. But, it does operate a 

The Keurig store Source: author

single retail location in the The Burlington Mall in Burlington, Massachusetts somewhat near the company's Vermont headquarters. The company operates the store as a way to do market testing and Keurig has denied that it's a prototype for future locations. That may be true given that the store opened in 2013 and is still the only one.

4. Green Mountain and Keurig were not always the same thing: What was then known as Green Mountain Coffee Roasters acquired the 65% of Keurig it did not already own in 2006 for $104.3 million, according to Boston Business Journal. At the time, Keurig was coming off a 2005 when it had $61 million in sales.

5. A better name would be K-Cup: Keurig is essentially a one-product company. Despite its efforts to launch other formats like Rio, Vue, and Kold, in 2015 the vast majority of its sales came from K-Cups. Keurig does not break down portion pack sales by type, but overall pod sales accounted for $3.6 billion of its $4.5 billion in 2015 sales and most of that was K-Cups.

6. Most Keurig brewers are sold by Keurig: Even though the company does license its K-Cup technology to partners, none of them have had much luck selling machines that use the coffee pods. In 2015, the company reported sales of 8.7 million brewers sold by Keurig with 0.5 million reported sold by its licensed brewer partners.

7. K-Cups are not a cheap way to make coffee: Before single-cup brewing became popular most people used to buy ground beans by the pound. Prices for that can vary, with Starbucks listing pounds of coffee on its website for around $14.50. On a per pound basis, K-Cups cost a whole lot more, according to The Atlantic.

The cups contain a mere 11 grams of ground coffee, vacuum-sealed in nitrogen to prevent oxidation. K-Cups are extremely profitable, selling standard coffee grounds for around $40 per pound.

8. The K-Cup patent has expired: When Keurig launched its 2.0 K-Cup brewers it caused a consumer uproar because the machines had digital rights management software which stopped users from brewing with unlicensed pods. That was needed because key patents on the portion packs expired in September 2012 making it possible for companies to make K-Cups without paying Keurig a fee.

9. Starbucks may stop paying licensing fees: Starbucks and Keurig have had an up and down relationship. The coffee chain has had little success with its own Verismo single-serve brewers so it has had to license K-Cups in order to have a piece of the one-cup home and office market. But, because of the Keurig patent expiring, the company may not choose to pay a licensing fee in the future.

"I want to assure retailers, the millions of consumers who demand Starbucks branded coffees to their Keurig brewers, many of whom have told us that they actually purchased a Keurig brewer only after Starbucks coffee became available in the platform and at the market that we are in the K-Cup business to stay," CEO Howard Schultz said during the company's Q1 earnings call, Business Insider reported. "However, at this moment, the only matter that remains unresolved is whether we will be doing so in conjunction with Keurig or on our own."

Losing Starbucks as a partner would be a blow, but it might make sense because presumptive Keurig owner JAB Holdings owns a number of cafe competitors including Peet's Coffee & Tea, Caribou Coffee, and the parent of Einstein Brothers Bagels.

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