Group 2 - Keurig Case
Transcript of Group 2 - Keurig Case
KeurigCoffee house taste by the
cup
Harvard Business CasePresentation Group:
Sophia, Tam, Trevor, Eva, Alice, Sean (Group 2)
Nicholas LazarisPresident/CEO Board Member
Christopher StevensVice PresidentSales and Marketing
Richard SweeneyVice President,Operations and Engineering
Spring 1998 – Keurig, Inc
“coffee house taste by the cup”
“Revolutionary” product• Keurig K-cup is a
premeasured coffee portion pack containing average 9.5 grams of freshly roasted and ground coffee and a conical shaped filter paper that holds the coffee
• Keurig Brewer
Keurig System Demo
Videoclip
Market Segmentation
Food service establishme
nts
Consumer market
Office coffee
services
- America coffee market: $15 billion
- Delays in launching its two-pronged campaign
The founding of Keurig
Ian Greenwood Peter Dragone
Product engineering abilities
Formal business training &Food industry experience
Creating a way to brew coffee much more precisely and consistently “Keurig”- a Dutch word for “excellence” as the name of the new company
The founding of KeurigLate 1992: presenting their ideas to experienced coffee-maker manufacturers with strong distribution channels but failed to get their interest.
• created a makeshift coffee-maker, refined the business plan
Late 1993: failed to seek financial backing from MDT Advisers, a financial management company responsible for the $1billion pension fund.
• scheduled several other meetings with manufacturers and premium roasters but still gained not much trust.
Early 1994: Received a small investment from the Food Fund and sold two prototype brewers to Dunkin’ Donut for $15,000.
Partnership with Green Mountain Coffee Roasters
1998 ProfileRevenues: $55.8 millionAssets: $24.6 milEmployees: 321Market value: $25.8milNASD symbol: GMCRGrowing net income
New Funding, New Management• Late 1994: reopened a
dialogue with MDT Advisers
April 1995: MDT & Food Fund became major investors ($1mil, 45% stake in Keurig)
Early 1996: an additional $1mil (58% stake)
• Doubts about Ian’s abilities to run the company going forward
Ian was asked to step aside as CEO in favor of Peter Dragone
June 1996 was fired after another change of position.
More New Management• Peter Dragone’s
resignation (Late summer 1996)
Keurig’s search for a new CEO with the Ostott Group, an executive search firm
Nick Lazaris was chosen to come on board as Keurig’s CEO and President (Feb 1997).
One More Shot…• MDT became 75% owners of Keurig• Outsource development of both brewer and
packaging• License technology to outside roasters• Result: Higher profits, but lower sales
Business Model
Gourmet Market Segment
• Office*• Food Service*• Home
• Office and food service were first targets because of retail price and development costs
• Once people became used to drinking Keurig coffee at the office, they would be more willing to buy a Keurig coffee maker for their homes
Office Coffee Systems•Overall cost savings (no wastage, labor, etc)
•Utilize existing OCS distributers
•Sold on contract basis (free/cheap coffee maker – office pays for coffee packs•Requires close relationship with distributors
Food Service• Supermarket, gas
stations, Lower volume restaurants
• Higher prices for products (gourmet segment)
• $1.5 B market for gourmet coffee
• No wastage
• Fewer, larger distributors (than OCS)
Consumer Segment• $2.20 B market• Growing gourmet segment • Secondary goal – R&D
advances needed• Need different business
model than commercial segments (no contract)
• No established marketing channels
Competitors• Filterfresh
– 29₵/cup– 40,000 existing
units ($2500/ea)• Café System 7
– 22₵/cup– 17,000 units
($2500 ea)• Flavia
– Part of M&M/Mars (most significant competitor, but didn’t have passion)
– 39₵/cup– 2000 ($1200 ea)
Trouble Brewing: Keurig’s Suppliers Disappoint
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Packaging line Trouble
MTS VS Keurig
Refused to deliver and asked for $180,000 more
Compromised in exchange for immediate control over the machine
Raised the bid from $550,000 to $700,000
While negotiating with MTS, trying to find new vendors
Rising Costs
Rising Costs Ethical issue
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Alternative Vendors Pros Cons Bid Time
Delay
Pilgrim
•Well-respected• Large producer •Interested
•Lacked an internal machine shop
$575,000 2 months
Quantum
Industries
•Experienced •Large production facility•Operated its own machine shop
•Financial instability•1500 miles away
$500,000 3 months
Amalgamated
Technologies
•Capability•Reputation•Cutting edge equipment
•Lacked interest $525,000 4 months
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2
3
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VandelayBrewer’s low quality Trying to squeeze additional moneyBid price increased from $789 to
$825
Brewer Trouble
Keurig : searching for a new vendor
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Alternative Vendor
Pros:•Technology•Maquiladora plant in Mexico•Capability of 10,000/year
Cons:Too low percent to get Lakeland’s attentionBid: $680
Pros:•Capability similar to the Lakeland•Own sheet metal fabrication shop
Cons:Financial difficultyBid: <$700
VS