Pods Perform

By Dan Bolton

Pod Pack International president and c.e.o. Tom Martin says that he is pretty happy with the way things turned out, as he stands admiring the factory floor of the company’s new Baton Rouge facility, a 74,000 sq. ft. model of single-serve efficiency.

The new plant can produce more than half a billion coffee and tea pods, filter rings, super pods, and capsules a year.

Martin and partner Bill Powell first began manufacturing “hockey pucks” of coffee sandwiched between two layers of filter paper in 1996. Their office, factory, and distribution center in New Orleans measured 400 sq. ft.

They caught the wave as Keurig Green Mountain and its capsule competitors pushed aside millions of 12 oz. bags of roast and ground coffee from grocery shelves nationwide. That surge eventually subsided as sales of capsule machines declined year-over-year and retail volume decreased by 2016. However, convenience knows no bounds and has since positioned private label manufacturers like Pod Pack to cross the trough in time to catch many waves to come.

Right now office coffee (OCS) is cresting, says national sales manager Dan Ragan. Ragan joined the company in 2011 after 27 years at Joe Ragan’s Coffee Ltd., a regional OCS with 6,600 clients. Ragan is based in Washington, D.C. Single-serve traces its start to OCS coffee purveyors who gave away brewers by the thousands to ensure resupply contracts. Foodservice continues to build and home penetration remains substantial with millennial enthusiasm for roasters who pack their local grind into capsules, says Martin.

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Currently, about 20% of the plant’s capacity is from OCS clients with another 20% going to hotels. Foodservice and retail account for about 250 million capsules annually with small roasters placing minimum orders for 36,000 k-cup compatible capsules.

Convenience is the driving force that guarantees single-serve coffee will be around a long time. What has changed are the economics and expectations, says Martin. Roasters doing a million pounds a week that rushed to buy their own capsule fill and pack equipment soon discovered it takes a lot of sophistication to replicate their signature taste. “Putting 8 grams of coffee in a hundred million capsules proved to be too much of a distraction,” says Martin, explaining “this is an extremely high-volume business.

”They can sometimes do it cheaper themselves, but not better, claims Ragan.

It’s harder than it looks

Filling the bins with coffee and flipping the switch on a multi-million dollar fill and seal machine that produces 300 capsules a minute can’t be that hard, right?

Consider the varying density of coffee at origin, the thousands of ways to roast coffee, the precision grind required to fill and pack each pod uniformly; compounded by many blends and multiple brands, says Philip Angus, business development director at ICA USA. His company supplied equipment for the new Pod Pack factory. “Pods are a commodity, each with unique characteristics,” he observes.

This is why Pod Pack offers a vertically integrated suite of capabilities includes sourcing, grinding, batching, flavor mixing, customized packaging, and distribution. The facility is designed with manufacturing space dedicated to grinding and blending with industry-leading R&D, warehousing, and office functionality. It is climate-controlled and with direct links to production bays utilizing real-time plant and machine monitoring systems, says Martin. 

Controlling every aspect of production is critical to delivering a good-tasting cup, he said.

The most common complaint is that single-serve methods of preparation result in a watery cup of coffee. Specialty roasters are rightfully concerned with achieving brew strength comparable to the selections offered in their coffee shop. 

Achieving a brew strength of 1.25 total dissolved solids (TDS) requires a precise grind and sophisticated internal filters in the capsule. Assuming you start with good coffee, the problem becomes how to get enough grind in a small space, says Angus.

Ring and soft filter combinations enable packers to adjust the dose from 7 to 14 grams. Filled properly and with the correct filter paper or mesh, a pod with 14 grams of coffee will deliver a very satisfying cup equal to drip brew in TDS.

Another aspect of commodity production is the fact that roasters must offer versatility in format. In addition to capsules and pods, Pod Pack fills tea packets, super pods, and cold brew pods.

Foodservice prefers filter pods, homeowners want K-Cups and Nespresso style capsules. Hotels and convenience stores order both capsules and pods, but they want the coffee packed individually in outer wraps that are easily recycled. Grocers and department stores sell capsules in boxes and box bottom pouches, some with freshness valves.

Filter pods are the rule in foodservice and more prominent than capsules in hotels and resorts but Keurig dominates the home market. Nespresso promotes espresso machines for the home but these are more likely seen in restaurants and offices. 

There are few in-home pod brewers. They produce a high-quality cup of coffee, according to Neil Madden at ECS Coffee outside Toronto, Canada. Selections are limited compared to capsules. He sells several blends of Reunion Island (16 pack/$10.99), Wolfgang Puck (18 pack/$10.99), Illycafe (18 pack/$16.99) and a 48-pack Senseo for $11.99. Cost per serving is as low as 25 cents.

Restraints on growth

Single-serve marketers have been fighting critical press coverage and consumer perception of pod capsules’ negative impact on the environment for several years, a task more challenging as Millenials with families populate the middle class.

“Companies have tried combatting this issue by showing consumers on their websites where they can recycle pods,” writes Euromonitor research analyst Jonah Koenigseker. The problem is that plastic pods cost $2,500 per metric ton to recycle, according to Calvin Lakhan, who holds a doctorate in waste management and is the co-founder of Wiki-Waste. 

“That is 16 times more than the average blue bin items,” he said, adding that compostable plant-based (PLA) pods are available. Keurig is likely to switch to PLA to fulfill its pledge to make K-Cups environmentally friendly by 2020. Unfortunately, PLA does not degrade in seawater. Meanwhile, political leaders are pushing a G7 Charter on Plastics Pollution to promote sustainable management of plastic products and waste globally.

Single-serve faces other headwinds says Koenigseker. “Convenience is no longer as much of a competitive advantage. The evolution of the internet of things (IoT) enables early-risers to program their home brewers the night before, make smaller pots (equivalent to a takeaway mug) with personalization at a reasonable price.

All this suggests the way forward is efficient production of sustainable single-serve at commodity scale. The new facility is an important milestone, says Martin. “It enables us to significantly expand production while developing novel single-serve solutions to better serve the rapidly evolving needs of our customer base,” he said.

CORRECTION: Calvin Lakhan's name was spelled incorrectly in the print edition.