Coffee, Burned

Foodie Friday has come around again and this week it brings us coffee. The folks at Keurig manufacture coffee makers and the pods that hold the coffee itself. They had an earnings call the other day and it brought out some very valuable lessons for all of us. Keurig’s financial results were not good and their stock has been hammered subsequent to the announcement. That’s not so instructive but the reasons why certainly are.

You might have one of these machines. If you do, you’re aware that the pods are both very expensive and not particularly earth-friendly. As what I consider to be a consumer-friendly nod to that, Keurig also makes a little reusable pod that you can fill with your favorite coffee. It’s less expensive, I find it makes better coffee, and the coffee grounds are the only trash. Of course if you want to go the single use pod route, there are lots of sources for them other than the “official” Keurig partners.

Keurig introduced its new flagship machine recently and there were some changes. First, the machine would only accept “official” Keurig pods – sort of Coffee Rights Management. The interwebs quickly figured out how to bypass this but the fact that it was deployed at all demonstrated Keurig’s thinking. Next, the reusable pod doesn’t fit in the new machine nor has Keurig made one. You MUST buy disposable pods.

Why would Keurig do this? Simple – the profit margin on the pods is huge. The results? Sales of coffee machines and accessories are down 23% in the last year and Keurig was forced to lower its 2015 sales forecast. Oops.

Of course, it’s not Keurig’s fault, at least not in their minds. “Some of this was due to consumer confusion around pod compatibility.” That’s the CEO on the earnings call.  OK, we’re dumb, but at least you admit you were too:

…we took the My K-cup away and quite honestly we’re wrong. We missed, we didn’t – we underestimated, it’s the easiest way to say, we underestimated the passion that consumer had for this. And when we did it, and we realized it, we’re bringing it back because it was we missed it.

The lessons are pretty apparent.  Don’t build your business around a plan that conflicts with your customers.  If they like a product, make it better or less expensive, or both.  Don’t take it away because you think it might improve your profits.  When something you’ve done isn’t accepted or working the way you planned, alluding to “consumer confusion” without admitting you caused it is narcissistic.  Frankly, for many people I know their morning K-Cup is not consumed with a desire for great coffee – it’s fast, it’s convenient, and they get over their guilt about polluting by the time they race out the door.  Getting those people angry by taking away choice in what they put into the machine isn’t growing the business – quite the opposite.

No business can overcome crappy product reviews (the new machine failed miserably) and consumer resentment over less choice.  Keurig’s results demonstrate that very well.  Any questions?

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Filed under Consulting, food, Huh?

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