Keurig Kold’s High Prices Might Outweigh Its Hype

Keurig Green Mountain’s (NASDAQ:GMCR) long awaited product, Keurig Kold, is finally out in the market. However, negative sentiments have already started haunting the company’s blockbuster product. Analysts around the world have started speculating the pros and cons of this strategy, some of which are discussed in details below. It is, however, still early to say whether Keurig Kold will be a positive new seller or a disaster for a company who is already facing headwinds in its core segments.

On September 29, 2015, Keurig Green Mountain launched its first cold beverage brewer that will allow its customers to make cold beverages at home. Users will be able to prepare their favorite beverages from brands, such as Coca-Cola (NYSE:KO) and Dr Pepper Snapple (NYSE:DPS). ^[1] The product will be sold exclusively through online platforms: Keurig.com.  The brewer specialist plans to roll out the Keurig Kold systems to retail stores in six more cities: Atlanta, Boston, Chicago, Dallas, Los Angeles, and New York by the end of October 2015.

GMCR stock has been one of the underperforming stocks in the industry, as it collapsed nearly 30% after the company reported poor sales growth and lowered its guidance in its Q3 2015 earnings results. One of the major factors leading to the stock decline was the availability of Keurig Kold only through online platforms.  GMCR’s stock has plummeted nearly 60% since the start of the year from $132 to $54. For the next couple of quarters, all eyes will be on Keurig Kold’s performance, determining whether the stock will rebound, or still witness further depths.

We have a $60 price estimate for Keurig Green Mountain, which is roughly 11% above the current market price. We are still factoring in the changes to the Keurig Kold segment.

See our full analysis of GMCR here

Here are some of the positives and negatives of the product:

Pros

• One of Its Kind

Keurig has been always been a prominent leader in innovation and technology, as is evident from the popularity of its hot brewers during the last 5 years. The company has redefined the consumption of hot beverages at home and in offices, providing easy access without any harm to the quality. The introduction of Keurig Kold will now enable the users to enjoy their cold beverages with the same comfort. Apart from this, the users will now be able to control the carbonation levels of their drinks as well. The use of pod technology to brew fully carbonated drinks, as well as other non-carbonated drinks, is what makes this product a superior piece of innovation.

There are several other features that have been bundled into one compact system, making it an all-in-one technology, with the choice of several popular brands. ^[2] In short, it’s a blockbuster product for users who want variety of brands and choices of beverages in one system.

• Ease Of Access

At-home carbonation has reached another level with the introduction of cold beverage brewer systems. Now, people do not have to travel to retail stores to buy different soda drinks. Instead, they can buy the Keurig Kold and easy to handle pods, and prepare any beverage of their choice. The ease of carrying compact flavor sachets, and the convenience of in-house consumption, will attract the avid customers to this product.

• Range Of Choices 

As sales of carbonated soft drinks (CSD) continue to fizz out, at-home carbonation emerged as an additional platform for soft drink consumption. In the U.S., customers have become more health and calorie conscious and have looked to boycott the sugary sodas. Consequently, categories such as sparkling water, ready-to-drink (RTD) teas, and sports drinks have witnessed a huge boost in recent times. Keurig Kold caters to that segment of customers as well.

Cons

• Pricing Is An Issue

The Keurig Kold unit is available at $370, which is much more expensive than Keurig 2.0’s most expensive range. When Keurig 2.o was released last August, the initial retail price for its K500 series ranged from $190-$200. ^[3] Even then, it didn’t go down well with the middle class families, who finally settled for the rather cheaper K300 series. Asking a price that high in the initial stages, knowing that the customers are still unhappy regarding the availability of the product on online platforms, might not be a smart move for the company. It will eventually lead to much slower volume sales, and the company might again have to face what it did during the launch of Keurig 2.0.

Furthermore, the Keurig Kold pod containing four 8-0z glasses will cost roughly $5, making it another negative aspect of the product for an average household. Rather, people may go buy a 12 pack bundle of coke cans for a much cheaper price. If the company doesn’t cut down on the prices for this product, it will be a huge failure in the coming few quarters. The other course of action for the company is to launch the product in retail stores nationwide as soon as possible. However, it will only slightly improve the situation.

• Availability Issues

As mentioned before, users will be comparatively skeptical about buying the product online. Consumers prefer to buy the product they can physically look at. Already, the company has faced a similar situation during the Keurig 2.0 launch, when the negative consumer perception regarding the brewer’s features led to slower growth in the initial phase. Although Keurig will start launching the products in some of the retail stores in a few cities by the next month, the limited availability will certainly harm the potential growth. As a result, the volume sales growth will be slower than it would have been if the product was released in retail stores.

The company promises to roll out the Kold machines in retail stores worldwide by the holiday season of 2016. For a period as long as 12 months, it is a huge gamble for the company.

• Other Technical Issues

There are several other technical queries or factors that might make the customers stay away from the product, such as:

1. The machine must remain plugged in at all times to keep the storage of water cold. As a result, customers will be worried about the soaring electricity bills.
2. Manual carbonation is not exactly what every layman can manage or handle perfectly. Consequently, some of the beverages may taste bad or not be up to the taste expected. Additionally, there is no guarantee if the drink will remain fizzy or will go flat more quickly than a traditional can of coke.

It seems that the cons might just outweigh the pros in the long term, as most of Keurig’s customers are middle-class households and are wary of the prices. Although it is still early to make a clear judgement, it seems the company might face much slower volume sales growth, until the product is introduced in the retail stores in major cities in the coming months.

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1. Keurig Green Mountain announces the launch of Keurig Kold [↩]
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