Case Analysis: Keurig – A Return to Growth

1. Introduction

Keurig Green Mountain (KGM) was once a dominant force in the single-serve coffee industry,
revolutionizing at-home coffee brewing. However, product missteps, increased competition, and
consumer backlash led to stagnation. In 2016, JAB Holding acquired the company, initiating a
turnaround under new CEO Bob Gamgort. By 2017, KGM had stabilized and sought new growth
strategies, with four major options under consideration.

2. Key Challenges & Issues

A. Declining Growth and Consumer Backlash

 Patent Expiry (2012): Allowed competitors to enter the market, offering cheaper alternatives
to K-Cups.

 Keurig 2.0 Failure (2014): Aimed to restrict third-party pods but frustrated consumers due to
DRM-style restrictions.

 Environmental Criticism: Non-recyclable K-Cups led to negative publicity and backlash.

 Keurig Kold Failure (2015): An expensive and impractical cold-beverage machine that failed
to gain traction.

B. Strategic Inflection Point

 After stabilizing operations post-acquisition, KGM needed a new growth strategy.

 The company considered four potential growth options: going public, global expansion,
coffee market consolidation, and diversification.

3. Strategic Alternatives

A. IPO 2.0 – Going Public Again

Pros:

 Unlocks capital and liquidity for shareholders.

 Builds on positive momentum from turnaround.

 Enhances brand credibility and transparency.

Cons:

 Loss of control: Public scrutiny may slow decision-making.

 Past issues: Investors may be skeptical due to past product failures.

 Short-term pressure: Need to meet quarterly earnings expectations.

Feasibility: Risky, but possible if KGM maintains strong financial performance.

B. Brewing Beyond Borders – International Expansion

Opportunities:

 Europe & Asia: Growing single-serve coffee markets.

 South Korea: Strong coffee culture with rising demand for convenience.

 High margins: Expanding globally can unlock new revenue streams.

Challenges:

 Market adaptation: Consumer preferences differ (e.g., espresso preference in Italy).

 Local competition: Nespresso, Lavazza, and Nestlé dominate various markets.

 Infrastructure & logistics: New supply chain setup required.

Feasibility: High growth potential but requires significant investment and adaptation.

C. Expanding in Coffee – Market Consolidation

Options:

 Acquire smaller regional coffee brands (e.g., Peet’s Coffee, Caribou Coffee, Tim Hortons).

 Merge with Dunkin’ to strengthen market position.

Pros:

 Expands brand portfolio and increases control over distribution.

 Increases K-Cup penetration and margin improvement.

 Strengthens Keurig’s bargaining power.

Cons:

 Might alienate partners (e.g., Starbucks, other roasters).

 High acquisition costs.

 Cultural fit: Managing a franchise-heavy model like Dunkin’ would be new for Keurig.

Feasibility: Attractive but must balance partnerships vs. acquisitions.

D. Diversification – Beverage & Food Expansion

Options:

1. Acquire a food brand like J.M. Smucker (owns Folgers, Jif, Pillsbury).

2. Expand into non-coffee beverages (e.g., Dr Pepper Snapple acquisition).

3. Explore new drink formats (e.g., cold brew, functional beverages).

Pros:
  Reduces reliance on coffee.

 Strengthens retail and distribution footprint.

 Aligns with industry trends (ready-to-drink, health-focused beverages).

Cons:

 Risk of dilution: Moving too far from coffee might weaken brand identity.

 Integration challenges: Managing multiple beverage categories is complex.

 Execution risk: Dr Pepper Snapple’s distribution model requires heavy CapEx.

Feasibility: Promising but needs careful execution.

4. Recommended Strategy

A. Primary Strategy: Expand in Coffee

 Acquire mid-sized coffee brands to strengthen North American dominance.

 Increase penetration in retail & foodservice (partner with chains like McDonald's).

 Enhance product innovation (eco-friendly pods, better machines).

B. Secondary Strategy: Beverage Diversification

 Acquire Dr Pepper Snapple to enter the non-coffee beverage segment.

 Introduce ready-to-drink coffee & functional beverages leveraging Dr Pepper’s distribution.

C. Global Expansion (Long-Term Plan)

 Pilot programs in South Korea & Europe to test market fit.

 Localized partnerships with premium coffee brands for credibility.

5. Financial & Operational Impact

Strategy Revenue Growth Profit Margins Risk Level

IPO 2.0 Medium Medium High

Global Expansion High Medium High

Coffee Market Expansion High High Medium

Beverage Diversification High High Medium

The coffee market expansion + beverage diversification strategy offers high growth and profitability
with manageable risks.

6. Risks & Mitigation

Risk Mitigation Strategy

Competitive threats from Nespresso, Nestlé Strengthen partnerships, invest in premium coffee

Market saturation in North America Expand beyond coffee into beverages

Consumer backlash on environmental impact Develop 100% recyclable K-Cups

Execution challenges in M&A Phased integration with clear synergy goals

7. Conclusion

Keurig's turnaround under Bob Gamgort positioned it for renewed growth. While an IPO is tempting,
expanding within coffee and diversifying into beverages provides the most sustainable and
profitable pathway forward. By carefully balancing acquisitions, partnerships, and innovation, Keurig
can reclaim leadership in the global beverage industry.

1. Financial Restructuring

Challenges Before Restructuring

 Declining revenue and profitability due to the Keurig 2.0 failure and increased competition
from third-party pods.

 High debt burden from past expansions and product failures (e.g., Keurig Kold).

 Pressure from falling brewer sales and stagnant pod growth.

Restructuring Measures

 JAB Holding’s $13.9 billion acquisition (2016): Took KGM private, reducing pressure from
public investors.

 Pricing Strategy: Reduced pod prices to improve competitiveness, funded through

productivity improvements.

 Operational cost-cutting: Streamlined production, improved procurement, and renegotiated

supplier contracts.

 Focused capital allocation: Investment in low-cost brewers (e.g., Walmart-exclusive model)

to increase household penetration.

Impact:

 Revenue rebounded to $4.1 billion in 2017, near pre-acquisition levels.

 Operating income exceeded $1.1 billion, signaling a successful turnaround.

2. Operational Efficiencies

Problems Before Turnaround

  Expensive and restrictive Keurig 2.0 system led to consumer dissatisfaction.

 Inefficient cost structures due to high dependency on pod sales.

 Over-diversification (e.g., Keurig Kold) diverted resources from core business.

Efficiency-Driven Initiatives

 Simplified product offerings: Removed Keurig 2.0 restrictions, launching more affordable
brewers for higher penetration.

 Lean manufacturing: Optimized pod production to lower costs and improve margins.

 Workforce restructuring: Focused talent on high-impact areas like coffee and supply chain.

 New distribution strategy: Expanded retail partnerships (e.g., exclusive Walmart model) to
increase reach.

Outcome:

 Improved cost control, higher profitability, and a better consumer experience.

3. Supply Chain Efficiency

Pre-Turnaround Issues

 High costs due to reliance on in-house pod production.

 Patent expiry in 2012 enabled third-party manufacturers to undercut Keurig.

 Environmental concerns: K-Cups were non-recyclable, creating consumer backlash.

Improvements Post-Turnaround

 Partnered with third-party manufacturers for cost-effective pod production.

 Introduced recyclable K-Cups to improve sustainability and brand perception.

 Increased automation in manufacturing, reducing labor costs and improving output.

 Strengthened supplier relationships to ensure consistent raw material quality and cost
control.

Results:

 Lower pod costs, making them competitive against third-party alternatives.

 Increased partner satisfaction, leading to stronger distribution networks.

 Improved brand image with sustainability-focused changes.

4. Market Dynamics

USP (Unique Selling Proposition)

Keurig’s razor-and-blade model was its primary USP:

  Sell brewers at low margins to drive repeat sales of high-margin K-Cups.

 Focus on convenience, speed, and variety of coffee flavors.

 First-mover advantage in the single-serve brewing industry.

Product Differentiation

1. Hardware Innovation

o Compact, affordable brewers post-2016 (e.g., Walmart-exclusive models).

o Removed DRM restrictions to allow compatibility with multiple pods.

2. K-Cup Variants

o Licensed premium brands (e.g., Starbucks, Dunkin’, Swiss Miss, Bigelow).

o Introduced specialty blends (e.g., organic, flavored, decaf).

3. Sustainability

o Shift to 100% recyclable pods by 2020 to address environmental concerns.

Competitive Differentiation:

 Unlike traditional drip coffee makers, Keurig offered speed and convenience.

 Differentiated from competitors like Nespresso (focused on espresso) by targeting American

drip coffee preferences.

5. Social Media Marketing

Previous Marketing Issues

 Keurig 2.0 faced severe backlash on social media due to DRM-like restrictions.

 Environmental concerns (e.g., #KillTheKCup movement) harmed brand perception.

Post-Turnaround Social Media Strategy

1. Addressing Negative Sentiment

o Public commitment to 100% recyclable K-Cups by 2020.

o Engagement with consumers via Twitter, Facebook, and Instagram to rebuild trust.

2. Influencer & Brand Partnerships

o Collaborated with food and lifestyle influencers to promote new products.

o Leveraged Starbucks, Dunkin’, and other brands to tap into existing audiences.

3. Targeted Ads & Promotions

o Ran Instagram & Facebook ads targeting millennials and busy professionals.

o Created seasonal campaigns (e.g., pumpkin spice K-Cups in fall).

 4. Engagement-Driven Content

o User-generated content campaigns encouraging customers to share their coffee

moments.

o Interactive content like polls, quizzes, and coffee recipe videos.

Impact:

 Improved brand sentiment by acknowledging past mistakes and engaging positively.

 Increased online visibility and purchase intent, driving brewer and pod sales.

6. Gap Analysis

Post-Turnaround (2017-
Category Pre-Turnaround (2015-2016) Remaining Gaps
Present)

Financial Improved profitability, Need for sustainable

Declining revenue, high costs
Performance cost reductions long-term growth

Consumer Negative (Keurig 2.0, DRM Positive (affordable Further work on eco-
Sentiment issues) brewers, recyclable pods) friendly perception

Keurig Kold failure, Affordable brewers, Global expansion

Product Offerings
overpriced pods better pod pricing needed

High costs, inefficient Leaner operations, Expand into direct-to-

Supply Chain
partnerships partner collaboration consumer sales

Market Nespresso and third-party Stronger partnerships Need for ready-to-drink

Positioning pods threatened leadership and brand recovery coffee segment entry

Social Media & Criticism on sustainability & Engaging content, Expand TikTok presence
Marketing pricing influencer marketing for younger consumers

Conclusion & Recommendations

1. Double down on coffee market expansion by acquiring regional brands and increasing
penetration in foodservice (e.g., McDonald’s, gas stations).

2. Enhance supply chain by investing in AI-driven demand forecasting and expanding direct-to-
consumer sales.

3. Strengthen sustainability positioning through a fully biodegradable pod to reinforce eco-

friendly branding.

4. Expand internationally, focusing on South Korea, Europe, and emerging coffee markets.

5. Leverage social media trends (TikTok, YouTube Shorts) to attract younger audiences and
build a stronger digital presence.