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Coca-Keurig machine could spell end for bottlers

Well, it finally happened.  Keurig announced the arrival of the Keurig Kold machine (or the Coca-Keurig as I like to call it) to officially enter the cold beverage market.  It took almost six years and more than $1 billion but it’s finally here!

Folks have asked lots of questions about the machine’s technical capabilities and whether it will actually be as successful as the Keurig coffee machines we have (mostly) come to love.  Instead of answering those questions, let me ask another.  What happens to the beverage industry if cold machines become the norm?

Before painting that picture, let’s review some fundamentals about the machine.  The Coca-Keurig machine as it exists today will end up retailing for ~$300 (current hot drink machines are ~$150) with pods costing ~$1.25 per 8 oz. serving compared to ~$0.30 for grocery store items.  The machine takes one minute to process a drink, including chilling the water.  Given the economics, Keurig has positioned the machine as a source of convenience and choice worthy of a premium.  Keurig CEO Brian Kelley hit the nail on the head when it comes to changing the industry when he said “We’ve literally brought a bottling plant into your home.”  That’s an epic statement.  Here’s what it could mean.

Consumers no longer act as walking billboards

The biggest change will be how consumers experience their beverages.  Using a machine and presumably a glass or bottle from home means consumers won’t walk around with the product flashing everyone around them.  That free advertising and brand awareness could disappear.  Beverage manufacturers can counteract this by investing in designer reusable bottles.  Coca-Cola branded S’well bottles could take the place of 20-oz. PET bottles.

On the bright side, innovation becomes much easier: if it can fit in a pod, it can be rolled out to market.  Manufacturers no longer have to go through the arduous process of selling bottlers on new products.  If a retailer shows resistance, put it on Amazon and see what happens.  Shipping lightweight pods is far easier than a 12-pack of cans.

Mother Earth can take a deep breath

Among the winners in this transformation is the environment.  While industry leaders have done much to improve their practices, a world filled with Keurig Kold machines will undoubtedly be better for the environment.  The plastic needed for a pod is far less than what’s needed for a bottle of soda.  There should be less waste due to products going bad as the pods will likely have longer shelf lives.  Total energy consumption summed up across all the individual machines is likely greater than scaled production at bottling plants.  That said, all of the energy saved in transporting light weight pods instead of heavy bottles and cans should outweigh those costs.

Manufacturer margins move on up

Everything goes back to Kelley’s statement.  If every house is a bottling plant, then there’s no need for massive bottlers.  This is music to a manufacturer’s ears.  With no bottlers to deal with, Coke and Pepsi have free reign to do whatever they want with their brands.  Want to launch a creative ad campaign? Push an emerging brand?  Do it!  No need to convince 10 different bottling groups that they should use valuable space on their trucks for an unproven product.  Manufacturers get to switch to essentially an asset-light model by off-loading the machinery to individual consumers.  This means higher profit margins with greater agility to implement strategies.  What manufacturer wouldn’t want this outcome?

So what do you all think about this?  Will the Keurig Kold be a hit?  If yes, will anything I said come true?  I’d love to hear your comments!

This piece originally appeared on LinkedIn.

Sources

//www.foxnews.com/leisure/2015/09/29/make-coca-cola-at-home-keurig-introduces-cold-brew-machine/

https://www.bostonglobe.com/business/2015/09/28/keurig-debuts-cold-drinks-machine-after-years-development/bo2qetzKkFczecfetZPzMK/story.html

//www.bevnet.com/news/2015/wsj-pepsico-sodastream-expand-partnership

//www.businessfinancenews.com/24088-pepsico-partners-with-soda-stream-keurigcoca-cola-tieup-troubled/

//fortune.com/2015/08/20/coca-cola-vs-pepsi/

October 2, 2015
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