Keurig Green Mountain stock prices fell today following the Waterbury-based company’s announcement that second quarter revenues were short of expectations.
At the heart of the lower revenues is the Keurig 2.0 brewing system released last year. Sales of Keurig brewing systems were down 22 percent compared to a year ago.
Consumers haven’t embraced the higher-priced 2.0 which, unlike its predecessors, only works with K-Cups licensed by Keurig.
The company has built a sizeable stable of K-Cup partners like Folgers, Newman’s Own, Eight O’Clock, and Dunkin’ Donuts, in addition to its own Green Mountain Coffee. But websites like Amazon.com are loaded with user complaints about the fact that unlicensed K-Cups don’t work in the brewers.
“There were many consumers who thought that it only brewed Green Mountain brand, or Keurig owned-brands,” said Keurig CEO Brian Kelley, speaking Wednesday during the company’s quarterly earnings webcast. “We didn’t get the message out effectively, we didn’t get it out quickly and we didn’t get it out broadly enough.”
Kelley said as a result, consumers were confused about the 2.0 systems.
In addition to improved marketing, Kelley says the company will reintroduce an accessory called My K-Cup, which lets consumers use any kind of coffee in the Keurig 2.0.
"There were many consumers who thought that it only brewed Green Mountain brand, or Keurig owned-brands. We didn't get the message out effectively, we didn't get it out quickly and we didn't get it out broadly enough." - Brian Kelley, Keurig CEO
“We underestimated the passion the consumer had for this,” said Kelley.
Kelley says another problem with the brewer sales is the higher price of the 2.0 system. The company is now introducing models that will sell for around $100, about $50 less that the starting price for 2.0 brewers listed on the company’s website. Problems moving the 2.0 systems also hurt the company’s K-Cup sales in the second quarter.
Kelley says Keurig will continue to dominate the single-serve market and he says consumer demand for brewers and K-Cups will remain strong.
Seth Golden, a research analyst with Capital Ladder Advisory Group, says in producing the 2.0 brewers, Keurig’s concern with preventing competing K-Cup makers from using the system blinded the company to how consumers would respond.
“It was a complete denial of how their existing user base uses their product,” he says.
"It was a complete denial of how their existing user base uses their product." - Seth Golden, Capital Ladder Advisory Group research analyst
Golden says the Keurig 2.0 has proven unpopular with consumers both because of price and the proprietary design. He’s not convinced that boosting sales is a matter of clearing up confusion over the which K-Cups will work in them.
“There’s no confusion by the consumer,” says Golden.
Golden believes that the company will be more successful selling new less expensive Keurig brewers like the K200.
“I do agree that the K200 is a very attractive, aesthetic looking model and at a lower price. I think that will definitely help their sales volume going forward,” he says.
Keurig is also preparing for the roll-out of a new cold beverage system, scheduled for release in the fall.
Next week, the company plans a webcast to introduce investors to the Keurig KOLD system.
