Several years ago, coffee pods seemed invincible.
Sales of the single-serve cups were skyrocketing, more than tripling in the United States between 2011 and 2013 alone. Sales of coffee pod machines were soaring, too, from 1.8 million units to 11.6 million between 2008 and 2013, according to the market research firm Euromonitor.
Today, however, things aren’t looking quite so rosy for coffee in its most convenient form.
Last week, Keurig, which dominates the U.S. market for coffee pods and the machines, said that it sold 7 percent fewer machines during the holidays than it had the year before, the sixth straight quarter in which unit sales fell. The news was particularly disappointing given how crucial the holiday season is for the company.
Machines weren’t the only thing hurting Keurig’s bottom line: Its K-cup coffee pods aren’t selling like they used to, either.
The company said unit sales of its pods fell for a second straight quarter, an ominous sign considering the little guys are responsible for about 80 percent of Keurig’s sales.
The decline is partly a problem of Keurig’s making.
The company, concerned that copycats — which emerged after a slew of patents expired in recent years — were eating into its business, launched the Keurig 2.0 in late 2014. It is a pricey new machine that works only with company-approved pods.
The bet was that by controlling the market, the company could better defend its territory. But the move backfired, leading to a 22 percent drop in machine sales in the first three months of 2015. Customers weren’t thrilled, which they have communicated, sometimes angrily, in reviews on Amazon.
Keurig’s problems probably are emblematic of a bigger trend: Coffee pod sales grew quickly during the recession, as Americans shifted to single-serve as a cheaper alternative to buying coffee out at restaurants and other food service establishments. It also didn’t hurt that coffee pods are efficient (less coffee waste) and convenient (just press a button).
But the circumstances that allowed for such impressive growth are changing.
“With the improved economy we are experiencing today, we believe the window of opportunity for pods is closing and the growth will stall in the next five years,” Eric Penicka, an industry analyst with Euromonitor, told Food Navigator USA last year.
Americans, suddenly finding themselves with fatter wallets, are again paying to buy coffee prepared by other people.
It’s also possible that people are reacting to the realization that Keurig’s coffee pods aren’t as environmentally friendly as one would hope.
Only 5 percent of the pods made by Green Mountain, which purchased Keurig in 2006, were recyclable as of 2014. The company promised to fix this by 2020, but in the meantime that means the pods are adding to the heaping piles of landfill in the country.
Coffee pods aren’t dead just yet — still about a third of all coffee sold in the United States. Nor are the machines dead yet. An estimated 25 percent of American households owns one.
But their future isn’t looking quite as bright as pod makers might hope.
So far that has led to a more than 40 percent drop in Keurig’s stock price since its peak in late 2014.
But going forward, that could prove to be a blessing for the coffee industry. The rise of coffee pods has caused a financial headache for coffee bean roasters and growers, who help supply the largest market in the world. That’s because Americans have traditionally brewed their coffee using drip machines, which are inefficient. Industry folks used to joke that “the sink is the world’s largest coffee consumer.”
Coffee pods, by comparison, have pushed people to make only what they plan to drink.