Single Cup, Many Options

When the patent for the K-Cup technology expires in 2012, retailers really will be able to compete in the single-cup coffee market.

The mug has become the new coffee pot. The single-cup hot beverage market — long dominated by Keurig Inc., a subsidiary of Waterbury, Vt.-based Green Mountain Coffee Roasters — has seen tremendous growth in recent years. In fact, data from New York-based Nielsen show that overall dollar sales in the single-cup hot beverage market increased 156 percent — from $100.7 million to $257.8 million — during the 52 weeks ending May 14 (food, drug and mass merchandiser stores, including Walmart).

And the dramatic growth is expected to continue — particularly after Green Mountain's patent on the single-cup ground roast technology expires in 2012. Harry Overly, vice president, marketing and sales for Manawa, Wis.-based Sturm Foods, notes that when the patent expires, Sturm will launch a national-brand-equivalent single-serve ground roast coffee assortment for retailers' store brand programs.

Trends with traction

In the last year or two, every major coffee brand seems to have been dipping its toes into the single-cup waters. Starbucks, Caribou Coffee and Dunkin' Donuts Coffees are just a few major brands that have entered the market with their own K-Cup products, which are compatible with Keurig's single-cup brewing system. Overly notes that the increase in single-cup SKUs has led retailers to expand the shelf space for these products — with some retailers devoting as much as 12 feet of space for single-cup products.

"And the launches of both Dunkin' Donuts and Starbucks brand K-cups will further develop the penetration of single-serve coffee brewers over the next year," he says. "Building upon this success, the introduction of private label single-serve coffee at the onset of patent expiration will be an exciting opportunity for retailers to capitalize on this growing trend."

But retailers might want to wait to introduce single-cup products under their own brands. Thom Blischok, global president of innovation and strategy with Chicago-based SymphonyIRI Group, says major consumer acceptance of single-cup coffee won't begin to take hold until 2013 — when he expects the price points of single-cup brewing systems to become more affordable.

"Consumers are still at a point where they are trying to rationalize how to buy just a single cup," he explains. "As machine costs come down, it will be easier to rationalize costs."

Trends on the horizon

When purchasing single-cup coffee products, consumers already may choose from their favorite roasts and flavors. And in 2012, Overly believes consumers also will be able to purchase single-cup products containing exotic coffee varieties from across the globe.

"While consumers are still staying true to their ‘everyday’ coffee blends — such as medium- to light-roast breakfast blends — growth will be seen in single-serve premium-priced exotic coffee blends with unique and storied origins," Overly says, pointing to Sumatra and Kona as two in-demand regional varieties retailers should keep an eye out for.

That said, retailers still will find an audience for quality value-tier products, Blischok says.

"The place where private label brands will win is at the entry-level value point," he notes. "Specifically, the way to win will be around aroma, acidity level, how it feels in the mouth ... in addition to affordability. I see this developing with some key retailers."