Innovations in Coffee Pod Technology: Necessary or Superfluous?

At the 2014 International Home + Housewares Show that took place on March 15-18th in Chicago, three new coffee pod machines stood out from the crowd: the VertuoLine, by Nespresso, the Keurig 2.0 by Keurig Green Mountain Coffee Roasters, and the  iCup by Remington. The VertuoLine is already available for retail, while the launches by Keurig and Remington are expected for later in 2014.  With each coffee pod machine claiming to represent a new frontier in pod coffee, the question arises of just how much room and demand there is for further coffee pod innovation?

The VertuoLine: Bigger Cups of Nespresso-Quality

Launched in February, 2014, Nespresso’s VertuoLine is a wholly new pod system, available exclusively in Canada and the US. Unlike previous Nespresso machines, which only brewed small portions of espresso-style coffee, the VertuoLine is able to brew larger eight ounce cups in addition to smaller espresso portions. Nestlé’s motivation behind the new system is to capture more of the increasingly lucrative North American coffee pod market, which reached US$ 3.4 billion in sales in 2013. Although Nestlé dominates the pod market in all other regions of the world, it has been unable to gain significant traction in North America, accounting for just 4% of the market in 2013. Nestlé hopes that a larger cup size option will attract North American consumers, who, unlike the company’s main European consumer base, tend to prefer larger cups of ‘drip-style,’ or ‘filtered coffee’ over espresso.

VertuoLine.jpg

Courtesy of Nespresso

To differentiate itself again other pod coffee, the VertuoLine emphasizes its ability to produce premium, high quality coffee through Centrifusion, a new patented technology which spins the capsule inside the machine and infuses it with water. The new brewing technique products crema – the thin layer of foam found on espresso – on every cup, whether large or small.  While the inclusion of a bigger cup size indicates Nespresso’s commitment to attracting North American coffee consumers, the emphasis on crema calls into question the ability of VertuoLine to truly replicate drip-style coffee.  The presence of crema is a sign of high quality for espresso because it indicates the right balance of temperature and pressure, but not a characteristic of drip-style coffee, of which pressure varies in importance. Accordingly, while the cup size may better appeal to North American coffee drinkers, the coffee, itself may not.

Keurig 2.0 = Keurig 1.0 + Multi-Serve

Keurig Green Mountain Coffee Roasters, the current leader in the North American coffee pod market with 76% share in 2013, hopes the Keurig 2.0 will further solidity its dominance. The innovations of the new system are twofold. First, unlike all previous Keurig systems, including the Vue and Rivo that could only brew single-serve cups of coffee, the Keurig 2.0 is able to brew large 28 ounce carafes of coffee, in addition to the single-serve cups. The inclusion of the carafe size is indicative of Keurig’s belief that the offering a multi-serve size is key to attracting new consumers to the system, while also an incentive for current consumers to trade-up to the 2.0 from their current machine. The different brew sizes require different sized coffee pods, the first of which is the same size as traditional K-Cups, the second of which is considerably larger in both width and height.

The ability to brew both sizes at optimal quality is made possible through the second innovation: interactive digital technology.  According to Keurig, each new pod will be equipped with this technology to enable the machine to automatically read the different size pods – not unlike the barcode technology used in the VertuoLine.  The technology will also locks-out all pods that do not have the technology, ie all pods that do not have a licensing agreement with Keurig. Since the expiration of Keurig’s key patents in 2012, Keurig-compatible pods have grown significantly in North America. According to Euromonitor International estimates, between 2012 and 2013, the retail value of non-licensed Keurig coffee pods in the US increased by 128%, reaching US$ 294 million in sales. More than half of unlicensed pods are private label, indicating the increasing importance of price to pod consumers. The elimination of less expensive pods, in addition to popular coffee brands like Maxwell, which do not have an agreement with Keurig, may significantly dampen the appeal of the 2.0.

iCup Promises Quality and Variety

The third noteworthy launch is the iCup by Remington. The iCup is a pod machine offshoot of the company’s iCoffee machine. Launched in 2013, the iCoffee machine claims to be first coffee machine to utilize rotational stream jets to brew coffee. The use of steam enables the coffee grounds to crack open, which expands the surface area of the coffee for brewing, which according to the company, results in a smoother, and more evenly-extracted brew. The iCup applies this same steam-brewing technology to pod coffee, in order to lessen the bitterness and acidity, which it claims is a common consequence of the quick speed at which single-serve coffee is brewed.

Icup.jpg

Courtesy of Remington

The iCup, like both the VertuoLine and Keurig 2.0 also uses digital technology to optimize the brewing of each cup. However, while the new systems by Nestlé and Keurig Green Mountain are compatible with only pods that licensed through each company, the iCup works with any pod compatible with both the existing Keurig K-Cup platform in addition to the new 2.0 pods. In other words, consumers will be able to use licenced and unlicensed pods in the iCup, including the new, larger 28 ounce K-Cups that will be launched later in the year.

If it’s not Broke, Fix it?

With the rapid growth of the pod coffee market, which reached US$ 10.8 billion in 2013, it is no surprise that manufacturers see innovation as a means to increase their share of the market.  However, how much demand is there for an upgraded pod coffee experience? Pod coffee is already the most premium positioned retail coffee option, due to its ability to quickly and easily produce a cup of fresh coffee of consistent quality, with minimal preparation and clean- up. Although each of the innovations in these new machines attempts to increase these key characteristics of convenience and/or quality it remains unclear whether consumers are actually looking for and willing to pay for an enhanced experience.  The premium promise of the VertuoLine may prove moot for consumers if it produces coffee that is more akin to an espresso-hybrid rather than true drip-style coffee. The addition of a multi-serve option in the Keurig 2.0 may suffer from similar consumer disinterest, as the initial draw of coffee pods was their ability to brew single-serve coffee and eliminate the need to brew larger pots. Multi-serve is also unlikely to attract non coffee-pod users, since it is a function already available in most standard coffee machines.  iCup’s open system may be the innovation of the three machines, even more so if the steam-brew technology results in a better tasting single-serve. Yet, whether these are reasons enough to compel current users to forego their existing machines remains uncertain.