Keurig: Cup Contributions

Cups
Current Cup Contribution for Keurig
= 125 M K-Cups/yr X 0.04 Royalty = $5M/yr
Brewers
Keurig Sold 33K brewers in 5 years for around $550 contribution/brewer so
550x 33K = $18M over 5 yrs for an average of $3.6M/yr
So company makes roughly $5M +$3.6M = $8.6M/yr
Roasters and KADS
• Coffee Roasters charge $0.25/cup to KADs
• KAD’S – >Office Managers – > $0.40- 0.50/ Cup so KADs make around $0.20/cup
 Coffee Market
• 20 MM CONSUMERS SPENT $3B IN 2002 FOR AT HOME GOURMET COFFEE
• PREPARED COFFEE –> $4 B MARKET
• $3B / 20MM = $150 / CUSTOMER / YR FOR AT HOME GOURMET COFFEE
• AV PRICE OF GOURMET COFFEE = $10/lb so around 15lbs consumption per person/yr

• COFFEE IN TYPICAL OFFICE?

• 125MM K-CUPS/YR, 33,000 BREWERS = 3800 CUPS/BREWER/YR
- 15 CUPS/ DAY/BREWER ( if 250 days)
- 10 CUPS/DAY/BREWER ( if 365 days)

• AT HOME 2 CUPS / DAY

• OFFICE BREWER ≈ 5-8 TIMES CUP VOLUME COMPARED TO AT HOME

 Home Market
IF SELL COFFEE THROUGH KADS
• 2 CUPS / DAY X 250 DAYS/ YR = 500 CUPS / CUSTOMER/ YR. ( IF ROYALTY =$0.04)
CONTRIB= 500 X $ 0.04 = $20 / YR/ CUSTOMER i.e PER BREWER SOLD.

• (IF 2.5 CUPS/ DAY X 365 DAYS/YR X 0.04 = $36.5 / YR/ CUSTOMER)

• If $20 /Yr, LIFETIME VALUE OF A CUSTOMER? – 5 YRS = $100. 10% DISC NPV = $76

IF SELL COFFEE DIRECTLY TO RETAILER

$0.20 = CONTRIB. ($0.45 - $0.25)
SO THEN 500 X $0.20 = $100 / YR/ CUSTOMER

• KEURIG WILL INCUR V.C OF SELLING COFFEE, SO THIS IS OVERSTATED CONTRIBUTION

If $100/Yr, CLV = $500, Discounted $380..
 Contributions
Office Market
• On Brewers, Average a KAD Makes on Office Market?
• Total Cups Sold= 125 MM; # of Brewers = 33K
• So Average Cups sold per Brewer 125M = 3,800 Cups
33,000
• If $0.20 margin/Cup
Per Brewer Contribution on Cups = 3,800 X 0.20 = $760/YR
Home Market
• # Of Brewers Sold is a function of KAD Participation, # of Offices, and # of Home Brewers /Office.
• For 60% Participation X 33,000 Offices X 2 Home Brewers sold / Office = 40,000 Brewers
• If Keurig makes $20/Brewer on Cups for At Home then they make 40Kx $20= $800K total/yr
• Brewer Profit for 40K brewer sales/ yr ? Total potential market/ yr?

Contribution for KAD on At Home Brewer

• 2 Cups/Day at $0.02/Cup = $14 / yr (ONLY) For 3 yrs so $42 Royalty plus one time $15 for Brewer so
$57 total contribution for 1 Brewer – Cups System
• HMMM…