And based on current projections, market researcher Packaged Facts predicts that the market will be worth a cool $5bn by 2016.
The strongest growth has been in private label single serve cups
The market leader, Green Mountain Coffee Roasters (GMCR), is estimated to hold about 60% of all single-serve sales across various brands followed by Starbucks with 18% and J.M. Smucker with 16% from its Folgers and Millstone brands.
However, the strongest growth has been in the private label market, with Packaged Facts estimating that private label single-cup brew coffee could grow from about $125m in 2013 to $750m in 2016 with a CAGR of 80% (vs 28-29% for single-serve brews overall).
Meanwhile, competitive activity has been increasing since the expiration of some GMCR K-Cup patents last fall, while there has also been strong growth in single-serve tea, chocolate, hot and cold fruit drinks and pour-over-ice products.
Biggest growth likely to come from internet sales
As for where shoppers are buying single-serve products, Packaged Facts reckons about a third of sales occur at supercenters, 19% at supermarkets and grocery stores and 10% at warehouse clubs.
However, the strongest growth in future is likely to come from online sales as the internet “will prove to be a cost effective and expedient approach for rapidly locating harder-to-find SKUs”, it predicts.
36m US homes likely to have Keurig machine by 2016?
GMCR recently claimed that 12 million US homes now have a Keurig machine - a figure predicted to increase to 35 million by 2016, adds the report.
“Single cup brewers provide the opportunity to experience high quality coffee without having to venture out and also put a much smaller dent in the wallet.
“Single-serve brewers are also a great holiday gift for those hard-to-shop-for adult family members and friends.”
While 49% of consumers who buy a single-serve brewer replace their old coffee maker, more than a third report using both the old brewer and the single-serve model, it notes, suggesting they both serve a different function.
More sustainable options a must if market is to grow
But if the market is to sustain its growth, it has to address environmental issues, says Packaged Facts, which published its report as Canada’s Canterbury Coffee introduced what it claimed was the first biodegradable, fair-trade, organic K-Cup compatible cup: OneCoffee (pictured).
“Improved recyclability and sustainability will become ever more important to the success of the single-cup brew market, if not a cost of entry, as the business matures”, it adds.
Unlike K-Cups, which are not compostable or recyclable, Keurig’s new Vue packs have been designed to be recyclable with #5 plastics, it notes. “More environmentally friendly designs for use in K-Cup brewers have also been implemented by LPB Manufacturing, Inc. in their UpShot Solution and by Rogers Family Co. in their OneCup capsule design.”
In the office coffee channel, meanwhile, Mars has also introduced Freshpacks that use new packaging with no aluminum foil layer, reducing what had been a three-material-package to one fully recyclable plastic.
JM Smucker: ‘As expected the growth rate has slowed, we remain bullish on K-Cups’
As to whether the market will be able to sustain current growth rates, probably not, bosses at JM Smucker (which makes K-cups under the Folgers and Millstone brands) told analysts on its latest earnings call.
But the prospects still look very encouraging, said the firm, which posted a 61% rise in sales of K-cups to $290m in the year to April 30, slightly below what had been predicted earlier in the year.
The fall-off in growth was also noted by analysts on the Q4 call, with JP Morgan Chase & Co analyst Kenneth Goldman observing: “For six straight quarters, your incremental sales from K-Cups were at least $30m and they suddenly dropped to $11m [in Q4]. That's a pretty sudden drop. What did you see that drove the quickness of that drop?”
Chief operating officer Vincent C. Byrd said that while “as expected the growth rate has slowed, we remain bullish on K-Cups.”
But he added: “To build a $290m business in a short period of time, we are very, very pleased with that.”
Caption: Price premium: Single-serve coffee has commanded $28-29/lb over the past year while ground coffee has averaged just $6/lb, says Packaged Facts.
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