The days when the the only things you’d find in K-Cup pods were Green Mountain (GMCR) coffee grounds are long gone. With dozens of brands, from Newman’s Own to Cinnabon, competing for Keurig machine owners, Starbucks (SBUX) and Folgers (SJM) have risen as favorites. Such newcomers as private labels and Kraft’s (KRFT) Maxwell House and Gevalia are expanding quickly, too.
Unit sales of Starbucks K-Cups at grocers grew 47 percent in the 12 months ending Jan. 26, according to data from market research firm IRI. No wonder the coffee chain’s chief operating officer, Troy Alstead, called K-Cups “an important driver of our long-term growth.” Since launching the pods in late 2011, Starbucks has grown into the No. 2 two-single-serve brand, followed by Folgers. Lower-cost private labels, taken together, grew about 470 percent during the period to rank fourth.
Top Five K-Cup Brands, Year-on-Year Unit Sales Growth
1. Green Mountain +29%
2. Starbucks +47%
3. Folgers +22%
4. Private Label +471%
5. Donut House +39%
Source: IRI. Data for year ending Jan. 26, 2014
The thing to note is that many brands—from Donut House to Revv—are actually owned or sold by Green Mountain, so the company still accounts for a large chunk of K-Cup sales.
Partner brands that aren’t owned by Green Mountain still boost the company’s bottom line in one of two ways: Green Mountain pays royalties to a brand to produce and sell pods bearing a different label, as with Newman’s Own; or Green Mountain supplies K-Cups to a partner such as Starbucks, which handles the retailing. Either way, the maker of the Keurig machines benefits. “We’re indifferent as to whether we’re selling our own brand or a licensed pack,” says Green Mountain spokeswoman Katie Gilroy.
That leaves as real competitors the “unlicensed” packs made by other manufacturers such as Kraft, maker of Maxwell House and Gevalia, which pay no royalties. These brands have grown quickly since entering the market in September 2012, when Green Mountain’s K-Cup patents expired. Unlicensed packs expanded from 7 percent of the market in mid 2013 to 14 percent by year-end, contributing to the growth of private labels as well.
Green Mountain has been trying to take over manufacturing for those brands, which it calls “converting,” and it expects the unlicensed share to begin declining later this year. The company wants to take back its share of the market, one pod partner at a time.