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Keurig is a single-serving portion pack coffee brewing system. It began producing brewers in 1998. At the time, the coffee market in the United States was a $15B industry. While overall coffee consumption levels had been relatively flat over the last several years, the specialty coffee segment had been growing rapidly. Due in large part to the rise of Starbucks in the 1990s, American consumers had increasingly drawn to gourmet coffee and exhibited a high willingness to pay for such coffee. At the time Keurig introduced its brewers, specialty coffee represented $4B of the $15B coffee market. Apart from the specialty vs. commodity coffee delineation, the coffee market was also segmented based on where coffee was consumed. Coffee consumption was primarily divided into three major categories: at-home, office, and food service.
Keurig wished to capitalize on the growing market for specialty coffee by creating a brewing system that would make a single serving of high-quality gourmet coffee quickly and consistently. This was accomplished through the use of “K-Cups”: a unique coffee package that contained coffee grounds and a filter, and preserved freshness by protecting the coffee from light, air, and moisture. Use of K-Cups, combined with a brewer that used the appropriate amount, pressure, and temperature of water, ensured a consistently high-quality cup of coffee every time the system was used.
The company decided to launch its product by focusing on the office segment. This segment was less competitive than other parts of the coffee market, and had a higher willingness to pay for coffee systems. Keurig also had what it thought was a compelling value proposition: office workers were largely dissatisfied with the traditional pots of coffee made in most offices, instead walking to nearby coffeeshops. If Keurig could entice these workers back to the break room with single-serving gourmet coffee, workers would be happier and productivity would increase. The