Holiday sales of Keurig’s new 2.0 brewer disappointed investors.
“Although we shipped 4.3 million brewers in the quarter we were down about 600,000 year over year with approximately 400,000 of that decline in MINI plus brewers,” Keurig Green Mountain c.e.o. Brian Kelley told analysts Feb. 4. The company earned $1.4 billion during the quarter.
In January the company recalled 7.2 million faulty non-reservoir brewers including 6.6 million in the U.S. and 564,000 in Canada. Consumers reported 200 incidents of hot liquid escaping and 90 burn-related injuries.
Brewer and accessory sales declined 18% and brewer volume declined 12% compared to 2013. Kelley said “we expected that growth rate to be meaningfully higher, “quite simply our 2.0 launch got off to a slower start than we planned.” He cited bad reviews, high stocks of 1.0 capsules in home pantries and consumer confusion “that has begun to subside.”
He said 80% of one-stare customer ratings cited non-compatibility. To remedy this concern Keurig now replaces the old style K-Cups for new brewer owners.
New brewer owners seldom complained, often awarding 5-stars and few machines were returned to retailers, he said, adding “Ratings have since improved.”
Portion pack sales increased 9% during the period despite a price increase. Private label capsules achieved 16% market share in 2014 before declining
“We believe that across the total system today [unlicensed pack share] is roughly 10% to 11% and it will be in the single digits by end of year,” said Kelley.
Keurig is estimated to hold about 85% share of the single-serve hot coffee brewer market.
Keuring is polishing a marketing and distribution plan for its cold brewer with a private demonstration scheduled for May. Kelley said the machine will launch with 16 brands and 30 varieties of soda, iced tea and vitamin waters from the Coca-Cola and Dr. Pepper portfolio.
“You push a button and in less than 60 seconds you’ll get a cold beverage, it will actually dispense at about 33 degrees. It will mix with ambient syrup that’s in the pod at 37- to 38-degrees. That will happen in less than a minute,” he said. Consumers can prepare eight back to back with no change in water and by placing ice in the reservoir and switching to party mode
“it can continue going.”
Kelley said the company’s new K200 hot brewer that launches this spring has a lower price point ($99 to $119), slimmer design and vibrant colors. He also announced a subscription program targeted to less affluent buyers and students who can obtain a Keurig for a monthly fee.
About half of the 2.0 machines were sold to new customers, the rest were existing customers trading up from the 1.0 brewers. “Single serve household penetration in the U.S. is still well below the 40 plus percent levels seen in other developed countries such as Portugal, France, the Netherlands, Spain, and Belgium,” he said.
“Our hot system is healthy,” said Kelley.