by KJ Fallon
And with single serve, people could have a different type of coffee any time they wanted. The single-cup brewer enabled coffee drinkers to engage in all the different options with real convenience. Someone could have a Kenyan in the morning, and a Costa Rican in the afternoon, and there was no need to make a full pot. It is just a more convenient way to satisfy the tastes for the wider variety of coffees now available, as DeRupo noted, as well as the preference for convenience.
The NCA doesn’t track by brand, but it does track in terms of how many households have a single brewer at home and at work, and how consumers broken out by demographics use their single-serve brewers—at home, away from home, or both.
Single serve grew up as a new technology introduced into the marketplace, DeRupo observed. It had a very slow start, but it has evolved into something longer term, according to the market research the NCA conducted over a long period of time. First came gourmet coffees and people’s awareness of them. Then consumers demanded specialty coffees to the extent where the NCA updated the definition of gourmet coffee in their main yearly report, National Coffee Drinking Trends. “The single cup brewing report,” said DeRupo, “is a breakout from that report, a deep dive into the data on single cup.”
Over the years, the NCA saw that they actually had to change their definition of gourmet coffee because it became so commonplace for people to choose premium beans that consumers began to think of gourmet coffee as regular coffee. Gourmet or specialty coffee had become just coffee. What consumers then considered to be gourmet coffee were the “fancy drinks,” like lattes and Frappuccinos and the like. “It’s evolved to that point where people, first of all, became aware,” said DeRupo. “It became very commonplace to look for the gourmet coffee options, then obviously more varieties were made available, and identified, in the marketplace, and people seemed to glom onto all of them.” That is the reason, DeRupo thinks, that there is still a lot of elasticity in the marketplace for retail establishments, why there will be a small chain gaining success in a city alongside a Starbucks. The appetite for more and for something different just keeps growing. Coffee’s popularity seems to have evolved in waves: Generally speaking, the First Wave of coffee refers to mass-produced coffee and the boom in coffee consumption; the Second Wave is about more specialized coffee and how people regard the beverage; the Third Wave involves considering coffee from cultivation to cup. The definition of Fourth Wave of coffee is a bit more fluid, but according to the musicians of Green Day who are among those in the forefront of this wave [more on that later], the Fourth Wave means sustainability and a real connection to the coffee producers. This is in addition to the drive for quality coffee and emphasis on origin that drove the Third Wave. The single cup is now its own reason for being. “Convenience might have made it grow,” said DeRupo, “but without the interest in trying different coffees, that growth may not have been quite as strong.”
Single-serve coffee was a technological advancement that came about for convenience, but people eventually tapped into the longer-term trend of trying different coffees, and wanted to partake in different types of coffee at different times of the day, once they understood these choices were out there. “People can now enjoy an excellent cup of coffee with dinner versus something with caffeine in it for breakfast that they [don’t] care so much about,” said DeRupo, “and this enables them to mix and match and switch off more easily.”
That’s something that annoys the hell out of me—I mean, if somebody says the coffee’s all ready and it isn’t.
—Holden Caulfield in J.D. Salinger’s
The Catcher in the Rye
With single serve, the coffee is pretty much always ready.
Nespresso, the Timing Was Not Yet Quite Right
Stepping back in time to 1976, the same year that the Apple computer was created, the first punk rock single was released, and the average price of a new house was less than forty-four thousand dollars, even before the love of specialty coffee became a nationwide obsession, something else was brewing. Something that would lead, eventually, to every coffee lover’s dream of brewing a fresh cup of gourmet coffee one cup at a time. Even before anyone was brewing a cup at a time using overgrown tea bag variations, across the ocean someone was at work trying to come up with a single-serve espresso maker. (Some English translations for the Italian word “espresso” include “fast” or “expressed.”) Eric Favre, who worked at Nestlé, decided to try his hand at coming up with a faster and easier way to make an admirable espresso. He would eventually come up with the Nespresso system. But in 1976, he was ahead of his time.
With a background in engineering, the Swiss-born Favre was looking for a way to put his skills to work. A trip to Italy set the wheels in motion, as it so often does, for a change in the coffee brewing industry—a faster way to brew high-quality coffee.
In an article in the Taipei Times, Favre said that if it had not been for his Italian-born wife, Anna-Maria, he likely would not have come up with the idea for a single-serve coffee capsule. She challenged him to find a better way to make good coffee quickly. According to the article, “In 1975, Favre’s coffee quest took him to the Caffe Sant’Eustachio, now listed in travel guides as a place serving one of the best espressos in Rome . . . Using Anna-Maria as his ‘spy,’ Favre said he discovered that a key to Sant’Eustachio’s superior coffee and crema was repeated aeration while hot water was being pumped through the coffee grinds.”12
Favre’s observations led to his idea for a machine that achieved the best possible aeration through a strategically designed single serve. In 1976, while working at Nestlé, Favre invented, patented, and introduced the Nespresso system. He brought his idea and even a prototype of the brewer to his bosses at Nestlé. They were, however, not interested.
It wasn’t as if the company was not innovative by nature. Back in 1929 the chairman of Nestlé was asked to find a soluble way to help Brazil make use of an immense surplus of coffee. Relatively crude forms of liquid and crystallized coffee existed, but they were not very appealing. After nearly a decade of very focused research, Nestlé came up with Nescafé in 1938, which they kept improving over the decades.13 Nestlé was moving forward with its huge success with its new, improved, and bestselling Nescafé instant coffee and was focused on that.14
Coming up with a brilliant idea is one thing, but convincing a company to run with it is another. Favre’s nascent ideas were a good start, but the timing was just not quite right. A decade later, however, it would be, and Eric Favre would go on to win the Coffee Leaders Lifetime Achievement Award for having a major and lasting effect on the industry.15
In the Meantime, Flavia
In 1982, Mars Drinks developed the MARS DRINKS™ FLAVIA® Freshbrew System for preparing hot drinks using fresh ground coffee and real leaf tea within a single-serve pack. They launched their first Flavia system in 1983 in the United Kingdom and in 1996 in the United States.16
Flavia was marketed on the basis of freshness, choice, and convenience. In the United States, it was touted as the first single-serve system that made coffee, tea, and hot chocolate from a single-serve pack. To this day, Flavia is still designed only for the workplace, with thirty-eight products that can be mixed and matched into 150 total combinations.17
Produced with corporate clientele in mind, Flavia uses filter packs of fresh coffee that also have a built-in filter. Everything is contained within the compact packet. The filter pack is placed inside a compartment of the brewer. A burst of air opens the sealed packet, followed by pressurized hot water that goes into the packet and brews the coffee. The beverage never comes into contact with the machine, so there is no mess and no cleanup, which is perfect for an office environment. No one has to take responsibility for the coffee area janitorial services.
This has been a very popular option for businesses and there are brewers for a variety of office sizes, starting with the Flavia Creation 150 that suits small offices of fifteen employees or less, on up to the commercial grade Fl
avia Creation 500 for offices with more than fifty people. The top of the line is the $3,000 Flavia Barista.18
Although Flavia is aimed at offices, they have smaller versions available for the workplace, which consumers can purchase from Amazon, office supply sites, and also in some Office Depot and Staples locations.
Nespresso
Eric Favre was not one to give up on his idea for a single-serve brewer that dispensed excellent espresso. He persisted with the bosses at Nestlé and by 1986, Nespresso was born. The coffee was to be encapsulated in little aluminum pods.
In 1988, under the direction of Nestlé chief executive Jean-Paul Gaillard, Nespresso grew and dominates the European market for single serve, as of this writing. Nespresso contracted with Swiss company Turmix in 1990, and then was picked up and marketed by the German company Krups, the Dutch company Philips, the Italian company De’Longhi, and others. Nespresso’s espresso-fueled reach was spreading throughout Europe.
Today, Nespresso has found a niche as a single-serve brewer of espresso and also for coffee and runs ads that have featured celebrities like George Clooney, Danny DeVito, Jack Black, Penelope Cruz, and John Malkovich.19
Nespresso was always known for authentic espresso and now offers two lines of brewers, the Original Line, which brews espresso, and the VertuoLine, which brews both espresso and coffee. Both use the Nespresso trademark colorful aluminum capsules.
Favre left Nestlé in 1991 to start work on another coffee brewer, and created and patented Monodor, which used a new pod design that did not contain aluminum. He later started yet another new coffee venture, Mocoffee, with cofounder Pascal M. Schittler. Patents for both Monodor and Mocoffee were sold to a Brazilian online wine and beer company.20
Favre also used his engineering talents to develop the Tpresso, which, as its name implies, makes fine tea using the capsule method.
When Gaillard left Nestlé, he went on to start a rival to Nespresso and others, his Ethical Coffee Company, another single-serve contender. The only constant about the single-serve business is change and rivalry.
There are two tracks in the development of the single-serve brewer. In the office single-serve coffee is now as ubiquitous as the copy machine. In the home, it is as essential as a microwave.
The single serve represents not just a brewing sea change for the United States’ forty billion dollar coffee industry, but also a lifestyle shift. No need for someone to brew a pot of coffee for a family or group. Now you can make fresh-brewed coffee just for yourself, without engaging anyone in conversation, and without even looking up from your iPhone.
CHAPTER 5
The K-Cup, an Industry Standard
Meanwhile, at the Office
The seeds of another single-serve contender to be reckoned with were starting to germinate in the early 1980s. The ideas for how to find this better way were percolating, but it would be a few years, a few experiments, and a few misses before the idea would become a reality.
No matter how you feel about single-serve coffee, Keurig’s rise from a very small company to the behemoth it is now is so noteworthy that there have been case studies about it. Harvard Business School, for example, has used Keurig case studies in its teaching.
Keurig is known for being based on the “razor-blades” model. This utilizes the concept that the razor itself is sold for a low price but the replacement blades are high priced.1 This is similar to the video game industry where the consoles are relatively inexpensive but the individual games are pricey. Same with some printers. The printers keep going down in price but the ink cartridges are expensive. With this concept, the main proponent, whether brewer, printer, or gaming console, can be sold at a loss and profits can be made by selling the coffee pods, ink cartridges, or games, respectively.
These days the Keurig has become so well-known that it is used as a comparative word when describing something that might be even remotely similar. You can go on the Internet and Google “the Keurig of” and see all sorts of different businesses for beverages and other products: “Not quite the Keurig of beer, PicoBrew brings craft brewing home”2; or “The CHiP promises to be the Keurig of Cookies” (that particular article by Grubstreet even uses the word Keurig-ify3) or “This Handy New Invention Promises to be the Keurig of Cocktails.”4 Keurig has become synonymous with fast and easy. That is an interesting evolution.
Why, spell-check in word processing programs even recognizes the word Keurig. Usually.
But it was not always so.
That name—Keurig. What exactly does it mean, anyway? The word was chosen because it had a European flair and had a Dutch sound to it. In Dutch, keurig means “choice,” “exquisite,” “neat,” and “proper,” to name a few. But it is also awfully close to the Danish word krig, which means war.
The backstory of the Keurig K-Cup includes the idea that there had to be a better way for workers in offices to get decent coffee, no matter what time of day. Inevitably, anyone wandering over to the coffee station would find not a fresh-brewed or even partially palatable pot of coffee but a solidified or burnt mess in the glass pots on the burners because no one in the office wanted to bother cleaning the pots or making a fresh pot. But everyone wanted to have fresh coffee available to drink and to fuel the workday. There had to be a better way.
Getting just the right configuration for practical and palatable fresh-brewed coffee one cup at a time that would make fueling up on java in the office an experience to actually look forward to, would not be easy. How to create a machine that could dispense single cups in a way that was accessible to anyone at the workplace?
What was needed was the right little container to hold the coffee and the right amount of pressure to push just enough water through the tiny container to make a decent cup of coffee, one at a time. Getting just the right formula for both the brewer and coffee container took years. Think about it. Now we are all accustomed to having the widest possible choices of a myriad type of single-serve coffee pods. But a few decades ago nothing like the single serve existed. It wasn’t as easy as Honey-I-Shrunk-the-Coffeemaker experimentation.
Matthew Haggerty is an engineer and one of the cofounders of Product Genesis, a strategic management consulting firm. He remembers working with Keurig toward getting the B200 up and ready. Keurig was developing two products, the machine and the K-Cup, and those were two very large initiatives for a start-up to take on.
“People often wonder why start-ups fail so often, and it’s because they’re so fragile at that stage,” Haggerty explained. Getting something to work in the lab can often be a far cry from a manufacturable product, and yet it may not appear that way to the people working on it in the lab.5
“When developing a product like this,” Haggerty said, “there are usually five developmental phases: experimental, alpha, beta, pre-production, and production. Prior to the experimental stage there is some lab work done to verify certain aspects of the system. Then there’s a full-up experimental prototype, which Keurig had, and also an alpha unit or two.”
Alphas, said Haggerty, are usually a good stab at what the devices look like and how they work, and they meet all the performance requirements: “There might be anywhere from ten to 100 Betas, depending on the intended volume of manufacture, they would be put into places close by. The pre-production phase would be the first full-on manufacturing run, but there are still going to be things to learn in the early fielding of these units. Field service, corrective action, reporting and things like that are still important.”
Dick Sweeney had a background in engineering and he came onboard at Keurig because he was interested in the idea of single-serve coffee for the office environment. It made sense. If companies could keep their workers in the office by offering them delicious and fueling coffee, instead of the them going out for decent-tasting coffee, a lot of work hours would be saved and efficiency would increase. Employees could enjoy cups of great quality coffee while at work, too.
Sweeney knew the mechanical end of things. S
aid Sweeney, “Two things hit me, one was the single-serve portion pack, which I’d seen, but there hadn’t been anything I considered really good out there. What was more intriguing was the office coffee service market which I’d never given a thought to.” The office coffee service market was very appealing because it has a low cost of entry, as opposed to standard retail where there is a great deal of advertising and promotion expense. “That was enticing,” recalls Sweeney. And before long, Sweeney became a cofounder with Keurig. “We worked on the product and raised money for development and it got venture capital money in ’95.”6
It was Sweeney’s job to figure out a way to automate the production of the machine. He had the product development and manufacturing experience. Nailing the prototype was one thing, but how could they cost-effectively produce in large quantities?
What surprised Sweeney about the whole process was the level of complexity involved: “The architecture of the system, whether it’s ours or anybody else’s, they’re all the same. Essentially you have to have a portion pack, an appliance that will efficiently utilize the portion pack in a way that’s very simple for the consumer, and then you need a packaging automation to make, in the beginning, thousands, tens of thousands, now billions, of portion packs.” The portion pack itself, which makes the Keurig system unique, has a controlled atmospheric environment. That simply means that they flush the cup with nitrogen during production to drive out the oxygen because oxygen will make the coffee go stale. Such a new concept was a leap of faith. Sweeney is not a marketing person but he thinks Keurig’s success comes from the fact that they got the North American consumer used to drinking a fresh cup of coffee consistently every time, something that coffee drinkers do not always get with drip coffee. Keurig’s marketing strategy to break into the office coffee market was well-thought-out and planned.7