Keurig Dr. Pepper partners with Intelligentsia in offering for premium products

As the coffee pod market shows signs of slowing growth, Keurig is turning to more premium products and hip brands like Intelligentsia to attract new customers.

Coffee brand Intelligentsia, known for its single-origin beans, trendy coffees and direct to market sourcing, announced in late June that it was partnering with cousin Keurig Dr. Pepper to launch into K-Cups. Intelligentsia opened its first cafe in Chicago in 1995 and has since expanded to 14 locations in trendy areas of Los Angeles, Austin, Boston and New York. She also runs a wholesale operation of her beans and land and became a private equity owner in 2015.

For Intelligentsia, the move comes after the earlier success of single servings and growing demand for home coffee. And for Keurig, a premium offering like Intelligentsia is a way to capture new sales in a market that’s starting to plateau — Keurig reported first-quarter coffee system net sales fell 4.3%, although that they are still up 12%. versus two years after a pandemic-era surge. Along with the Intelligentsia line, Keurig is releasing more expensive machines meant to deliver a tastier drink with extra water flows and offering custom designs on coffee makers.

“Giving consumers the variety they seek is always a priority, and by adding Intelligentsia to the Keurig system as a partner, we promise Intelligentsia fans an authentic experience with the convenience, quality and consistency of Keurig,” said Ben Yoder, vice president of coffee partners and private label for Keurig, in an email.

A premium offer

A June 2022 report from Mordor Intelligence predicts that there may be some stagnation in the coffee pod market over the next five years due to its maturity. According to the report, approximately 40% of US consumers have a single-cup coffee brewing system.

The recent stabilization of single-serve brewing translates to opportunities for exciting new types of pods, according to the Mordor report, including specialty and organic pods. “In order to stay in the competitive market, companies constantly and strategically improve their product portfolio by exploiting segments,” he says.

Manola Soler, senior director of Alvarez & Marsal Consumer Retail Group, said the rise in high-end coffee consumption at home has accelerated during the pandemic, with coffee lovers moving from cafes to counters in the home. JDE Peet’s, owner of Intelligentsia, reported organic sales growth of 6.1% in fiscal 2021.

Soler predicts the trend will continue as inflation continues to put pressure on prices, making a quality K-Cup a more affordable value than a $7 latte.

“If you’re a coffee consumer trying to cut costs, the savings will be significant and the brewing process will be simple, the taste results consistent, so it still feels like a little indulgence,” she said.

Intelligentsia K-Cups come in two flavors — House and Organic El Gallo — and cost as little as 90 cents a pod in a box of 60 units on Keurig.com. But they’re still priced higher than Green Mountain Coffee or The Original Donut Shop pods at 52 cents each in similar quantities.

A new system

The Intelligentsia pairing took off after Keurig launched its most premium machines in late 2020 that include Keurig’s MultiStream technology, Intelligentsia CEO James McLaughin said in an email to Modern Retail. The technology is included in the new K-Supreme machines that are among Keurig’s most expensive single-serve offerings starting at $159, and use five water jets instead of one to dispense a more even brew.

“In our own testing, we found this new technology to be a game-changer in terms of quality,” said CEO James McLaughlin. in an email to Modern Retail. “We were able to achieve higher extraction rates with the MultiStream technology.”

A Keurig.com ad for the new pods urges customers to “elevate their daily ritual.”

McLaughlin, who has run the company since 2014, said the shift to K-Cups was spurred by the success of an instant coffee line that started the pandemic. At that time, consumers were looking for high-quality coffee that they could easily prepare at home, and sales of the packets “far exceeded our most optimistic expectations”.

The move comes with an increase in the number of instant coffees and other packaged goods, fueled by the way coronavirus shutdowns have drawn coffee drinkers inside their homes. Pret a Manger launched a packaged coffee offering, for example, while Costa Coffee in Europe expanded its packaged options.

Globally, the coffee pods and capsules market is expected to grow at a compound annual growth rate of 7.72% through 2027, according to the Mordor report.

“The continued disruption of out-of-home coffee sales due to the pandemic has forced major coffee chains to increase sales through retail packaged coffee,” the Mordor report said.

For growing coffee brands, pods and other retail-focused products are a way to expand business beyond coffee shops. Intelligentsia did not respond to inquiries about the percentage of its revenue coming from wholesale channels, but in its 2021 annual report, parent company Peet’s said its CPG business saw “solid organic growth at a sales figure, driving growth of 2 CAGR of 19% year-on-year.”

Conglomerate Cousins

The deal represents a cross between private equity holdings: Keurig Dr Pepper and JDE Peet’s are both under the JAB Holdings umbrella.

Peet’s Coffee, which was acquired by JAB in 2012, took ownership of Intelligentsia in 2015, part of a wave of expansion that also included the acquisition of upscale brand Stumptown. Then in 2019 Peet’s merged with leading Dutch coffee brand JDE to form JDE Peet’s.

The Keurig product was launched in the late 1990s with Green Mountain Coffee Roasters as its signature pod offering. Keurig Green Mountain was acquired by JAB Holdings in 2016, then merged with Dr. Pepper Snapple Group in 2018 in a nearly $19 billion deal.

Austin Frerick, a food systems and agriculture researcher at Yale University who studies the concentration of power in the food space, said JAB has rolled up the coffee system by quickly acquiring a wide variety of actors from the food space. industry.

“They weren’t even in the cafe 10 or 15 years ago and then they played aggressively,” he said.

Consumers probably don’t know how many coffee brands are in JAB’s portfolio, he said, or realize how intertwined the different brands are.

The coffee industry has high levels of segmentation, which boils down to the difference between a Whole Foods buyer and a Dollar General buyer, Frerick said.

But the Intelligentsia K-Cups show how the segments can trace back to a holding company — and how companies can capitalize on the opportunity to attract craft drinkers to a product mostly relegated to suburban offices and homes.

Having a variety of offerings allows Keurig to meet demands across the spectrum, Frerick said, while keeping everything under JAB.

“You want to appeal to the yuppie consumer, but you also want to appeal to the blue-collar consumer of coffee, because that yuppie consumer wants to drink a different one from the other,” he said.

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