Inside Keurig’s evolution from single-serve novelty to brewer of coffeehouse-style drinks

Once celebrated as a pioneer with its single-serve coffee pods, the future of the popular Keurig platform is increasingly built around its ability to replicate an array of coffeehouse-style drinks for a demanding consumer.

“We’ve come a long way from just making sure that you had a faithful reproduction of a cherished brand in a hot black cup of coffee,” Patrick Minogue, president of U.S. coffee for Keurig Dr Pepper, said in an interview.

Consumers, he added, have become more demanding and have higher expectations for Keurig than ever before. “That keeps us honest and keeps us innovating,” Minogue said. 

Keurig’s roots go back three decades when two engineers approached Green Mountain Coffee Roasters about developing a single-cup brewing system. They called their company “Keurig,” derived from the Dutch word for excellence. The first test brewer, the Concept 1, was sold in 1995 for $15,000, with only three models ever made.

Today, Keurig, which is owned by beverage giant Keurig Dr Pepper, has just under 40 million households using its coffee brewing system. Executives estimate there are more than 50 million new households Keurig could eventually add to its platform.

Minogue said attracting new drinkers to the Keurig platform has proven to be a challenge as the brand matures, placing an impetus on adding new features that go beyond simply replicating a single cup of coffee. 

With competition from other brands, such as Nestlé’s Nespresso, along with coffeehouse stalwarts like Starbucks and countless smaller independent chains, executives at Keurig are cognizant of the fact that they can’t afford to sit idle.

Consumers want their machines to replicate the premium, high-quality coffees they purchase outside of the home, with more choice and at an affordable price, Minogue said. 

During the past seven years, Keurig has incorporated features including the ability to add froth, produce both hot and cold drinks on the same machine and replicate a highly caffeinated beverage like an espresso, into new product launches.

Cold coffee heating up

So far, it appears Keurig’s strategy is paying off. The brand, with recognition topping 90%, posted its ninth straight year of market share gains in 2023, according to parent Keurig Dr Pepper. Currently, a third of all coffeemakers being sold in the U.S. are Keurig or Keurig-compatible models.

Garrett Nelson, an analyst with CFRA, said Keurig will continue to prioritize innovation and incorporate features that consumers are looking for into the system. “It’s a very competitive space,” Nelson said. “That’s going to be key going forward, continuing to come out with better, more efficient products.”  

The coffee business also has been a boon for Keurig Dr Pepper, which similar to PepsiCo and Coca-Cola, has seen softening demand in soft drinks as consumers cut back on sugar. Keurig, he said, provides “a level of stability” for the “significant headwinds” the beverage giant is facing in other parts of its business. 

While Keurig is most closely associated with hot beverages, the coffee maker has made inroads in recent years to implement cold brewing features into its platform — which are especially popular among younger drinkers.

Carlos Laboy, an analyst with HSBC, noted in a December report that the trend of consumers moving from cold coffee to hot “offers growth potential” for an already strong brand.

He said Keurig has a high penetration rate in hot coffee-drinking households, “unmatched” scale of coffee pod manufacturing and a strong portfolio of brands. In addition, Keurig possesses a national sales and distribution reach for its coffee makers and pods and an approach to designing new digitally connected brewers that resonate with consumers.

“Having changed the at-home hot coffee pot habit, Keurig’s next disruptive growth phase is starting as it adjusts its platform and rolls out new designs of affordable coffee makers for at-home cold coffee occasions,” Laboy noted.

Keurig’s K-Iced machine, launched in 2023, includes a feature that automatically adjusts the brew temperature, starting hotter to extract the full flavor of the ground coffee and then cooling down to minimize ice melt.

It also has developed K-Cup pods that can better withstand the ice to deliver coffee that doesn’t taste watered down. The pods can be used in existing models, eliminating the need for the consumer to purchase an entirely new brewer.  

While cold beverages offer one of the highest growth opportunities, it’s not the only area that Keurig has turned to for innovation.

The coffee system created a machine called the Keurig Duo five years ago that can make a 2-ounce or 4-ounce single cup and a larger, 12-cup carafe. Keurig found some consumers may not always want a small cup, such as when they have a large group of people visiting their homes.

In 2022, it rolled out the K-Café Smart, which has a technology called BrewID that detects the K-Cup pod in the brewer and then sifts through nearly 200 potential options. Through a corresponding mobile app, the consumer can then review different drink recipes best suited for that pod. A Cafe Bustelo selection, for example, suggests iced coffee, cafe con leche, Mexican coffee, and cafe mocha as possible choices.

“The consumer is always going to change, so, yeah, it is a bit of an impossible mission to meet all the needs of the U.S. consumer,” Minogue said. “But that’s what keeps us excited and interested in this space. It’s forever ending. There is no final destination here.” 

Despite sluggish demand, ‘Green shoots are emerging’

Still, despite its success, Keurig hasn’t been immune to obstacles throughout its nearly 30 years on the market.

Previous attempts on a countertop soda machine that allowed shoppers to make chilled Coca-Cola, Dr Pepper and other carbonated beverages at home, and a platform to create alcoholic cocktail drinks as part of a partnership with beer giant Anheuser-Busch, failed to gain traction in the marketplace and were discontinued.

Similar to other brands in the food and beverage space, Keurig is facing headwinds as consumers pull back on spending and it faces tough comparisons after a COVID-induced spike.

During its third quarter, Keurig Dr Pepper said net sales of coffee fell 3.2% to $1.01 billion, compared to $1.05 billion in the year-ago period, as price increases failed to offset a decline in volume and product mix. The decline, however, marked an improvement from the prior quarter where sales dipped 5.7%.

In a research note in October, analysts at Goldman Sachs said despite sluggish at-home coffee demand that “green shoots are emerging in the segment” for Keuirg Dr Pepper. 

The firm highlighted year-over-year improvements in operating margins and operating income growth for Keurig Dr Pepper’s U.S. coffee business in the third quarter as evidence that management is “doing a good job controlling what it can.”

Nelson at CFRA said with many of Keurig’s coffee brands having a lower price point than other premium offerings such as a coffee from Starbucks or a similar beverage on a platform such as Nespresso, it has managed to attract cash-strapped consumers who are looking to trade down to less expensive products amid the surge in inflation.

He said the price gap between Keurig’s brands and other premium coffees has widened in recent years despite Keurig raising prices, making the product even more attractive.

To better keep pace with shifting trends and the evolution of the consumer, Keurig is spending more to promote its brands on social media and interacting with its user base online to help better gauge its needs. Recently, Keurig’s legacy brand, Green Mountain Coffee Roasters, partnered with actor Kevin Costner to develop and promote a series of blends. 

At the same time, the coffee maker is depending more heavily on data for insight and placing greater attention on what’s transpiring at local coffee shops.  

When asked about the possibility of Keurig entering ready-to-drink coffee given the widespread recognition of the brand and the popularity of portable offerings, he did not rule it out.

“We are very focused on making our current partnerships very successful in the market, but we’re always looking and considering opportunities such as” this,  he said. “We were actively considering a lot of different opportunities at any given time.”