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Keurig-Case Study (Design Thinking)
Keurig-Case Study (Design Thinking)
KEURIG BREWED ®
Strategic Management Project
GROUP 10
I. Executive Summary
a. Mission Statement
b. Vision
c. Objectives
d. Strategies
f. Competition
g. Recommendations
IV. What kind of strategy did your company have, and what kind do you need now?
Founded in 1990 by Peter Dragone and John Sylvan, Keurig set out to revolutionize the coffee
industry by providing a convenient, easy, and delicious way to enjoy a cup of coffee.
Specifically, Keurig believes that coffee should always be served fresh, whether at home or at
the office, just as in a gourmet coffeehouse. In 1998, Keurig released an industrial strength,
single-serve brewing coffee maker that delivered a perfect cup of coffee, hot tea, hot cocoa, and
specialty products every time. Keurig dispenses coffee along with desired condiments such as
cream and sugar but there are no limitations. With 2-in-1 technology furthers the adaptation of
the single-serve lifestyle as a necessary part of one's coffee enjoyment. In 2006, Keurig became a
wholly owned subsidiary of Green Mountain Coffee Roasters. Inc. as a world-wide industry
leader in single-cup coffee brewing technology. Keurig is now a quickly growing company as
they continue to innovate with new brewing technologies, expand their wide flavor selection,
promote their socially responsible business practices, and work hard to bring consumers the
Vision: Keurig's vision is to be the leading specialty coffee company by providing the highest
quality coffee, having the largest market share in the targeted market while maximizing the
company value. Keurig intends to achieve this objective by differentiating and reinforcing the
Green Mountain Coffee Roasters and engendering a high degree of consumer loyalty.
Objectives: Due to approximately 24 million coffee brewers were sold in 2012 in the U.S., and
Keurig’s goal was convert half of the 90 million American homes with coffee brewers to Keurig.
Strategies: Keurig identified four main aspects to implement their strategy included new brewer
technologies, new beverage categories, new brands, new channels. First of all, about the
technologies, Keurig expands the Keurig Single Cup Brewing system to include Keurig Vue
brewers and related Vue packs. It launches the Keurig Rivo Cappuccino and Latte System and
Rivo pack espresso blend varieties in partnership with Luigi Lavazza S.p.A. Also, it try to
introduce the GMCR’s Wellness Brewed collection which includes coffees, teas, and “Vitamin
Burst” fruit brew beverages that contained added ingredients like antioxidant vitamins. Secondly,
Keurig try to gain the market share in the office market was to sell machines to distributors and
encourage them to give the machines away or lease them for a small fee. Thirdly, it expands
consumer choice by entering into a number of business relationships, enabling them to offer
strong national and regional coffee brands such as Folgers and Millstone, Dunkin’s Brands, Inc.,
Starbucks coffee, Tazo tea, Eight O’clock coffee, Tetley tea, Good Earth tea, and Snapple tea in
single-serve packs for use with Keurig Single Cup Brewers. Last but not least, it drives Keurig
Single Cup Brewer adoption in North American households and offices to generate ongoing
In the 1990s, Keurig introduced a drip-style machine that provided coffee for those who did not
like espresso. K-Cup® System is an original single-cup brewing maker which is designed to
brew a single cup of coffee, tea, hot chocolate, or other hot beverage. Besides, Keurig also
obtains, produces, and sells various kinds of coffee, teas, cocoa and other form of beverages in
K-cup portion packs and coffee in conventional packaging style. Keurig brews coffee or tea by
piercing the foil seal on top of the plastic K-Cup pack with a spray nozzle, while piercing the
bottom of the K-Cup pack with a discharge nozzle. Grounds contained inside the K-Cup pack are
in a paper filter. Hot water is forced through the K-Cup pack, passing through the grounds and
through the filter. A brewing temperature of 192 degrees Fahrenheit (89 Celsius) is the default
setting, with some models permitting users to adjust the temperature. It sells many models for
use with K-Cup packs, for household and commercial use. Licensed models from Breville, made
by the Australian company of the same name, Cuisinart, and Mr. Coffee all introduced in 2010
are also available. It is believed that it is offering more than two hundred varieties of hot
beverages. In addition to the products, Keurig is providing wide selection of whole beans,
ground coffee in fractional packs and ground coffee selections in bags that can be easily used by
Furthermore, Keurig improves its technology with the advent of Vue® System as a huge step of
innovation. The Vue system offers more control of the brew with a wider range of mug sizes.
Unlike K-Cups Packs, Vue Packs can be emptied and recycled after use. Some models can read
the RFID tags embedded in Vue packs to select the optimal brew settings for each variety of
In specifically, in the most recent, Keurig is launched the Rivo® System as the most advent
model which offers the ability to make hot or cold espresso based beverages. Lavazza Espresso
coffee packs are used with this system. Espresso size options are 1.4 or 2.8 ounces and three
low barriers to entry encouraged new competitors to enter the market, particularly with typically
lower-cost brewers that brewed coffee packaged in non-patented pods. There are many currents
and potential competitors had substantially greater financial, marketing, and operating resources
than Keurig such as Nestlé (Nespresso and Dolce Gusto), Kracft (Tassimo), and Mars (Flavia).
Moreover, in the United States single-cup markert, Starbucks and GMCR had annouced in
March 2011 that Starbucks was the “exclusive, licensed super-premium coffee brand produced
by GMCR for the Keurig Single Cup brewing system." According to Keurig, their primary
competitors were Flavia beverage systems (manufactured of Mars), the Tassimo beverage system
(manufactured of Kraft), the Senseo brewing system (manufactured and marketed by Philips and
Sara Lee), and a number of additional single-cup brewing systems and brands. Kraft’s Tassimo
system was made primarily for at-home use, while Mar’s Flavia system targeted offices.
Recommendation: The case study about Keurig coffee helps us to understand deeply the
importance of strategy development along with factors that need to be taken into account when
designing the strategy. It also highlighted the problems being faced by the company along with
competitiveness in business environment. Throughout the case, we can see that the cost of
Keurig is too expensive lead to the product price seems like higher than competitors’ products.
So, Keurig’s revenue might be decreased (limited company resources). Therefore, we suggest
- It should continue with its innovation strategy by introducing new products in the market.
- With the help of integration, it will be able to lower its transaction costs and bear its efficiency
cost as well.
- It should make changes in its strategies to make sure that it is able to capture its desired market
share.
- It should find out the new market or new customer segments to introduce its products for the
- It should create partnerships with competitors along with following right strategy for
SWOT Analysis:
Strengths:
Firstly, Keurig has a strong brand in the field of the single-serve brewing coffee. It is introduced
in 1997. Hence, the partnership is one of the largest strengths of Keurig compared to other
competitors. Currently, Keurig has solid brand partners such as Green Mountain Coffee®,
Diedrich Coffee, Inc., Gloria Jean’s Coffee, Timothy’s World Coffee of Canada, Van Houtte
Inc., Ueshima Coffee Company of Japan (UCC), Celestial Seasonings, The Bigelow Tea Co.,
Ghirardelli, Twinings of London, Tully’s Coffee Co., Newman’s Own Organics, Caribou Coffee,
Coffee People that help Keurig take more opportunities to get a competitive advantage in the
market place.
The second strength of Keurig is related to the patented technology. Keurig has several patents
about its single-serve coffee machines. It seems like a superior technology. These patents cover
the way to brew a cup of coffee by the coffee maker and use the coffee maker. Keurig makes a
profit not only from the sale of the coffee machine but also selling its single- use coffee cartridge.
Thirdly, Keurig is available in many different distribution channels. It is one of the main
strengths of Keurig. A good instance for this view is that Keurig sell over 100 coffee categories
through the coordinated multi-channel distribution network. Multiple distribution channels are
designed to maximize Keurig’s brand recognition and product availability. Keurig products are
served for supermarket, specialty food store, convenience store, food service, hotel, restaurant,
university, travel and office coffee service customers. It helps almost customers can exposure
Last but not least, the variety of product is a competitive advantage of Keurig. The large majority
of customers said that they feel enjoy with Keurig products and services. It is really quick and
clean, efficient and convenient for next using. Moreover, Keurig products are eco-friendly
Weaknesses:
We know that weaknesses refer to the internal conditions of the firm and where it may be lacking
relative to competitors. Therefore, our company identify the expense of systems that it is a
weakness of the brand. Moreover, Keurig has not spent a great amount of their money for
advertising. That is why it is little brand name presence in world. Beside that GMCR cannot
forecast the demand for K-Cups and have warranty issues as well as no system in place to
handle. Finally, GMCR depend on certain retailer for a substantial portion of revenues.
Opportunities:
In March 2012, GMCR launched Vue brewing machine which is next generation pod brewer that
proposes a variety of some advanced elements as evaluated to standard and modern Keurig
machines. They have been changed with innovative technologies that support demands of
consumer in getting coffees consistent with their tastes and choices. Moreover, consumers can
take control on their drink’s strength, temperature that should be set for brewing, generally it is
related to the brewed and wide range of options to choose from for brewing other drinks like café
beverages such as lattes. GMCR can participate in prosperous market, and carry out promotion
of its specialty coffee as a supplement to this latest presentation i.e. Keurig Vue.
Furthermore, there is a high perception in the market via competitors as partnering with other
coffee manufacturers like Folgers and Caribou Coffee, GMCR can enhance its brand image in
the market. Also, GMCR raises supply of K-Cup packs for competitors so its Keurig products
In addition, there are wide options for expansion in other regions. In the last couple of years,
coffee consumption has been grown in Asia, Europe and Brazil so by getting target and creating
effect on more coffee drinkers in these countries, GMCR can obtain the competitive advantage
Threats:
Firstly, decrease in coffee consumption in United States market, coffee consumption has fallen
dramatically, specifically it only reaches to 20% of coffee expenditure worldwide. Europe and
Asia are the countries that have capacity of targeting coffee drinkers.
Secondly, there is a high competition, majority of companies are arriving specialty coffee
industry and since there are low barriers to entry, there is an enormous possibility that number of
Next, another problem is related to price volatility, the cost of products is likely to change
suddenly which can be dangerous for GMCR as it is trying to maintain its low cost production
advantage. The coffee suppliers can even change their prices and may start charging high rates
considering the growth in this industry. There is high uncertainly for coffee supplier contracts in
Finally, there is a heavy dependence on specialty coffee farms. Therefore, GCMR counts on
these farms to get best coffee beans for creating perfect coffee blend. If productivity is poor or
weather conditions are not favorable, then farming of specialty coffee beans will be adversely
affected which would create problem for GMCR as it will have low level of inventory and will
Keurig product belongs to the maturity stage in the product life cycle. The U.S single-cup market
was dominated by GMCR with its cartridge-based Keurig K-cup brewing system. One of the
most valuable evidences for this view is that there were approximately 2.6 million coffee
Of those offices, GMCR accounted for about half of those were Keurig brewers. Keurig brewers
were to be in 30 percent of offices in England, national penetration in the office channel was
about 6 percent. Another valuable evidence suggests that Keurig maintained the quality products
to easy to use features, and innovative technologies earned Keurig high marks in customer
satisfaction, with 94 percent customer satisfaction from tracked brewer purchasers. According to
the statistics in this case, single-serve coffee machines accounted for 20 percent of total coffee
machine volume sales in 2012, up from 4 percent in 2006. Total coffee maker sales were
projected to increase by 20 percent from 2011 to 2016, largely driven by pod machine expansion.
Consequently, fresh-ground-coffee pods were expected to lead growth within coffee from 2011
to 2016, with off-trade volume growth of 74 percent. Furthermore, as of March 2012, between
10.8 and 12.2 million Keurig brewers were to be in use in the U.S. As of 2006, more than 1
billion cups of Keurig Brewed coffee and tea had been consumed since Keurig launched in 1998.
GMCR continued to be the leading K-cup roaster, representing 57 percent of K-cups shipped in
fiscal 2008. As of 2008, more than 2 billion K-cups had been shipped since 1998.
What kind of strategy did your company have, and what kind do you need now?
GMCR applied the differentiation strategy, specifically GMCR identified four vectors as part of
a growth strategy for Keurig as new brewer technologies, new beverage categories, new branch,
new channels. Moreover, it also focused on continued innovation, both in single-serve brewing
systems and other single-serve beverages. Some of GMCR’s 2012 initiatives included:
An expansion of the Keurig Single Cup Brewing system to include Keurig Vue brewers and
A launch of the Keurig Rivo Cappuccino and Latte System and Rivo pack espresso blend
An introduction of GMCR’s Wellness Brewed collection which included coffees, teas, and
“Vitamin Burst” fruit brew beverages that contained added ingredients like antioxidant vitamins.
In addition, management was focused on executing on the above stated growth strategy to drive
Keurig Single Cup Brewer adoption in North American households and offices to generate
ongoing demand for single-serve packs. Also, with many single-serve beverage brands across
multiple beverage categories, GMCR offered more than 225 individual varieties, allowing
consumers to enjoy and explore a wide range of beverages. Furthermore, achieving a variety of
brands of coffee and tea, GMCR also produced and sold hot apple cider, iced teas, iced coffees,
iced fruit brews, hot cocoa, and other dairy-based beverages in single-serve packs. Also, it
continued expanding consumer choice in the Keurig Single Cup Brewing system by entering into
a number of business relationships, enabling them to refer some strong national and regional
coffee brands such as Folgers and Millstone (owned by The J.M. Smucker Company),
Dunkin’Brands,Inc., Starbucks coffee and Tazo tea, Eight O’Clock coffee, Tetley tea, Good
Earth tea, and Snapple teas in single-serve packs for use with Keurig Single Cup Brewers.
Now, GMCR need maintain profitable, strategic relationships with well-recognized coffee
brands. Also, they can expand their system and officers in other market, and attract some huge
coffee brands in other to create the strong business relationships for ensuring long-term growth,
Critical success factors Weight Rating Score Rating Score Rating Score
shows strong financial strength and is unlikely to fall into distressed situations. According to the
statistic on the Gurufocus webpage, the financial strength rank measures how strong a company
• Keurig has a high ROI with 0.67 compared to the industry, the variable can have a 6
score.
• Keurig’s change in working capital that ended in Sep. 2012 was $84 mil. It means
Keurig’s working capital declined by $84 mil comparison with the whole market, so the variable
can have a 4.
• Keurig’s liquidly ratio that ended in Sep. 2012 was nearly 125%. Therefore, the variable
• Keurig’s financial and operating leverage ended in Sep. 2012 was nearly 76%. Therefore,
• Keurig’s resource availability ended in Sep. 2012 was nearly 59%. Therefore, the
• The quality of Keurig is better than 86% of the other companies in its peer group with
• The product life cycle of Keurig is quite stable and there were approximately 2.6 million
• The Cash flow of GMCR is quite high with other competitors due to its net income got
582.42M, this value is extremely high in competitive market, so the variable can have a 5 score
• The large majority of customers said that they feel enjoy with Keurig products and
services. It is really quick and clean, efficient and convenient for next using. Moreover, Keurig
products are eco-friendly products with the natural environment. Hence, Keurig’s customer
An expansion of the Keurig Single Cup Brewing system to include Keurig Vue brewers and
related Vue packs. A launch of the Keurig Rivo Cappuccino and Latte System and Rivo pack
espresso blend varieties in partnership with Luigi Lavazza S.p.A. ( Lavazza). An introduction of
GMCR’s Wellness Brewed collection which included coffees, teas, and “Vitamin Burst” fruit
brew beverages that contained added ingredients like antioxidant vitamins. Therefore, the
• The coffee suppliers can even change their prices and may start charging high rates
considering the growth in this industry. There is high uncertainly for coffee supplier contracts in
future that can cause difficulty in future profits. Thus, the sound supply chain of Keurig is not
• The inflation of Keurig is very low with 0.2% compare to other companies, so the
variable is a -5 score.
• The average percentage of Keurig’s product price is around $41.8. It is higher than
Starbucks Corporation price with 31.28% in Jan. 26 2012. Hence, the variable is able to get a -1
score.
• The barriers to entry toward Keurig is low; therefore, the variable can take is a -3 score.
• The competitive pressure of Keurig is low compare to several new entrants or old rivals
because Keurig is a pioneer in the field of making single-serve system as well as it has a solid
years. Besides, market share of Keurig can probably increase with other competitors so the
Keurig is not easy to exit in this major industry, and the variable may be a -5 score.
• The price elasticity of demand is high because the production of Keurig depends on the
preference level of consumers, and price of goods can change by the production, so the variable
• Risk exposure of Keurig is low because its PEG (5 years expected) as 1.86 is stable but it
is also limited by problems of coffee suppliers and price volatility, high competition so the
• The quarterly revenue growth of GMCR is highest in competitive market as 0.06, P/E
(ttm) is quite high as 32.45 than some competitors, and so its growth potential is extremely
• GMCR’s EPS is highest in competitive market, and its profit potential is evaluated as
• The market share of GMCR have an increased trend because the quantity current
competitors of this major increase rapidly, and Keurig supplied its product to competitors as a
• According to the values of operating margins and net income of GMCR as 0.2 and
582.42M, the numbers is highest than other competitors so the financial stability is ensured well,
about single K-cup system in US so its barriers is more low than other competitors in this
market, and the Keurig can be more easy to entry as well as the variable can probably a 5 score.
• According to the market capitalization of Keurig is not high, it only gains 18.68B than
other competitors in market, and this value is considered as a medium level for capacity
• The technological change of Keurig is related to the patented technology. It has several
patents about its single-serve coffee machines. It seems like a superior technology. These patents
cover the way to brew a cup of coffee by the coffee maker and use the coffee maker. Also, it
makes a profit not only from the sale of the coffee machine but also selling its single-use coffee
The position of Keurig (GMCR) in the quadrant one of the Grand Strategy Matrix that is meant
for those firms which are in a strong competitive position and flourishing with rapid market
growth. Based on case 34 in the book, we find out evidence to demonstrate Keurig in the
U.S. grew by over 500 percent from 2006 to 2011. Pod machines had become increasingly
popular in workplaces and households with pods now available in mainstream grocery stores and
hypermarket, led by the products from food-service. Moreover, fresh ground coffee were
expected to lead growth within coffee from 2011 to 2016, with off-trade volume growth of 74
percent. Many forecasted that the global economic downturn would temper demand for pods, as
they were both priced and positioned as a premium product. Manufacturers continued to provide
consumers with customization and price segmentation, pods were forecasted to continue taking
market share from other coffee types. The Keurig found success in the United States, while the
higher-priced Nespresso had struggled, owning to Keurig’s speed and ease of use producing a
high-quality cup of coffee more appealing for American consumption, rather than the European
coffees that Nespresso recreated. Combining this with the licensing agreements between Keurig
and many popular specialty coffee brand like Caribou, Starbucks, and Dunkin’ Donuts, U.S.
consumers were using the machines to recreate the on-trade experience, giving a perception of
quality at lower price points. With single-serve brewer penetration increasing in U.S. households
and players such as Starbucks entering the premium brewer market, exposure for single-cup
machines had been forecasted to increase the double digit growth of the single-serve market.
Approximately 24 million coffee brewers were sold in 2012 in the U.S., and Keurig’s goal was
to convert half of the 90 million American homes with coffee brewers to Keurig. Keurig initially
focused on the away-from-home commercial segment of office users. Increasing demand and
penetration in the office channel was only about 6 percent. Moreover, Keurig continued working
with its network of Keurig Authorized Distributors to execute office acquisition plans and
conduct lead generation, demonstrations, and samplings program to build Keurig’s office coffee
business. In addition to Keurig’s traditional distributor network, customers such as Office Depot
and Staples were helping Keurig grow through their business to business solution for both large
In January 2007 Keurig, Inc., and Caribou coffee, the second-largest publicly traded gourmet
coffee company in the United States in terms of number of retail stores, announced a partnership
to market Caribou’s gourmet coffee in the Keurig K-Cups. In September 2008 GMCR
announced an assets purchased agreement to acquire the Tully’s coffee brand and wholesale
business.
GMCR continued expanding consumer choice in the Keurig Single Cup Brewing system by
entering into a number of business relationships, enabling them to offer strong national and
regional coffee brands such as Folgers and Millstone, Dunkin’s Brands, Inc., Starbucks coffee
and Tazo tea, Good Earth tea, and Snapple teas in single-serve packs for use with Keurig Single
Cup Brewers.
• New brands
• New channels
GMCR also focused on continued innovation, both in single-serve brewing systems and other
• A launch of the Keurig Rivo Cappuccino and Latte System and Rivo pack
uteas, and “Vitamin Burst” fruit brew beverages that contained added ingredients
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