Keurig de­sign­ing eco-friendly K-Cups

The Washington Post Sunday - - CAPITAL BUSINESS - BY THOMAS HEATH thomas.heath@wash­post.com

The K-Cup that sparks so many mil­lions of cof­fee drinkers to life each morn­ing is ap­peal­ing to eco­con­scious con­sumers — just as the mar­ket for its Cup of Joe ap­pears to be cool­ing.

Keurig Green Moun­tain said it plans by 2020 to change the plas­tic com­po­si­tion in the bil­lions of KCup sin­gle-serv­ing cof­fee con­tain­ers it sells annually, mak­ing them more lu­cra­tive to re­cy­clers while re­mov­ing one of the nag­ging com­plaints that the lit­tle pods are pil­ing up in land­fills.

“Our goal is 100 per­cent Keurig K-Cup pods di­verted from land­fills by curb­side re­cy­cling,” said Monique Ox­en­der, the cof­fee brewer’s chief sus­tain­abil­ity of­fi­cer. “The con­sumer is go­ing to brew it, peel and empty it, and pop the pod into the re­cy­cling bin in the same be­hav­ior they would do with a yogurt cup. We want to make it a habit.”

The re­cy­cling break­through comes as the Keurig’s sin­gle-serve cof­fee ma­chines, which helped rev­o­lu­tion­ize cof­fee con­sump­tion, are be­com­ing less of a habit af­ter years of growth. There were 23 mil­lion Keurig ma­chines in North Amer­i­can homes by Septem­ber, ac­cord­ing to the firm.

Ac­cord­ing to an­a­lysts, growth in the K-Cup mar­ket has stalled as Ver­mont-based Keurig loses mar­ket share. “If it is go­ing to be eas­ier to re­cy­cle K-Cups, some con­sumers will care, and that may or may not af­fect de­mand,” said Pablo Zuanic, an an­a­lyst with Susque­hanna In­ter­na­tional Group. “I don’t think it’s go­ing to move the nee­dle. The big­ger is­sue for Keurig is that there are not enough af­ford­able Keurig ma­chines, and so vol­ume is not grow­ing much. ”

The com­pany’s model has shifted from man­u­fac­tur­ing pods that con­tain its own brand to mak­ing pods for brands such as Star­bucks and Dunkin’ Donuts, which is known as co-pack­ing. Co-pack­ing for oth­ers is a lower-mar­gin busi­ness.

Keurig was founded in Mas­sachusetts in 1992. Its first ma­chines, known as brew­ers, launched in 1998 and tar­geted the of­fice mar­ket. Home brew­ers be­gan sell­ing in 2004.

Keurig has been knocked for the bil­lions of re­cy­cle-re­sis­tant KCup pods. A Keurig spokesman said the com­pany sold 10.5 bil­lion K-Cups for the fis­cal year end­ing in Septem­ber 2015, the last year of pub­lic data be­fore the com­pany was taken pri­vate in a $13.9 bil­lion buy­out by JAB Hold­ing.

JAB is an in­vest­ment firm man­ag­ing the money for Ger­many’s Reimann fam­ily. The fam­ily’s port­fo­lio also in­cludes stakes in Eng­land’s Reckitt Benckiser con­sumer goods com­pany, the Coty fra­grance firm and the Jimmy Choo lux­ury shoe brand.

Keurig was strug­gling with de­clin­ing sales when JAB an­nounced it was ac­quir­ing the firm in De­cem­ber 2015. Part of JAB’s strat­egy was to use Keurig tech­nol­ogy and its dom­i­nance of the U.S. mar­ket to be­come “the Bud[weiser] of the cof­fee space,” Zuanic said at the time, ac­cord­ing to the Wall Street Jour­nal.

It would also be a hedge by JAB against Euro­pean ri­vals such as Nestlé, the largest pack­aged-cof­fee com­pany in the world.

But the com­pany has not yet de­liv­ered on its growth, with an­a­lysts cit­ing a lack of in­no­va­tion and af­ford­abil­ity. Zuanic said the com­pany needs to lower the cost of the brew­ers to be­low $79, en­tic­ing more buy­ers. He also said the ma­chines have failed to be­come smaller, faster and qui­eter.

The com­pany is pre­par­ing to de­liver the knock­out punch to its crit­ics in the sus­tain­abil­ity world.

The prob­lem with K-Cups is twofold. First, they have been too small for the sort­ing ma­chines to “see” and move to the re­cy­cling line in­stead of the garbage heap. Sec­ond, the ma­te­rial com­po­si­tion of the K-Cup plas­tic did not lend it­self to be­ing bro­ken down and reused as an­other ma­te­rial.

Many of the 600 or so re­cy­cling plants across the United States and Canada have rein­vested in tech­nol­ogy that can spot the KCup pods. In a se­ries of tests that Ox­en­der termed “myth-bust­ing,” 90 per­cent of Keurig K-Cups were sorted ap­pro­pri­ately.

Also, Ox­en­der said Keurig is chang­ing the makeup of its KCups from poly­styrene to polypropy­lene. “What we have found is, with (poly­styrene), there’s not a lot of value to it,” he said. “In the good ver­sus bad, it’s de­ter­mined by mar­ket value. If it’s plas­tic that can be made into some­thing new, it has higher value.”

“We have lis­tened to our con­sumers and stake­hold­ers,” Ox­en­der said. “We are de­liv­er­ing a truly re­cy­clable so­lu­tion.”

Peo­ple will “pop the pod into the re­cy­cling bin in the same be­hav­ior they would do with a yogurt cup.” Monique Ox­en­der, Keurig Green Moun­tain’s chief sus­tain­abil­ity of­fi­cer

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