Rogers v Keurig: the single-cup coffee war heats up

In the cutthroat world of single-cup coffee brewers it boils down to this: there is Keurig and then there’s everyone else. At least that’s how Vermont-based Keurig Green Mountain, which manufactures the popular Keurig coffee machines and has formed exclusive licensing agreements with such powerhouses as Maxwell House and McCafe, would like it to be.

But on the other side of the country, a family-run operation has launched a wildly successful guerrilla marketing campaign it hopes will dig into Keurig’s market share – and reduce the huge environmental impact from single-serve coffee waste.

About a year ago, California-based Rogers Family Coffee President Jon B Rogers heard rumblings that Keurig was set to produce a new brewing machine that would use a form of digital-rights management to prevent third-party coffee pods, such as those produced by Rogers, from brewing in its machines. The trouble was, he didn’t know how it was going to work.

“No one ever saw the machine,” Rogers said. “So we were not able to find out how it was locking us out.”

Rogers — along with others such as Canada’s Club Coffee — had already taken its battles with Keurig to the courts, suing for violation of antitrust and unfair competition laws. But three months ago he took to the countertop with a copyright-protection workaround, a hack in the form of a tiny piece of plastic that fits permanently into Keurig’s machines.

The so-called Freedom Clip not only chips away at Keurig’s monopoly, but in the process offers up a slew of more environmentally friendly options to millions of Keurig consumers.

“I just hope to have my product work in their machines, that’s all,” Rogers said. “My product and everybody else’s product.”

When Keurig 2.0 finally hit stores in August 2014, it turned out the proprietary system was actually the ink printed on the labels of Keurig’s coffee pods (K-cups). The 2.0 machines rejected pods without the proper ink so the pods of companies like Rogers no longer worked; the machines also rejected older Keurig coffee pods because they, too, lacked the proper ink.

Enter the Freedom Clip, which was brought to Rogers by one of his plastic suppliers. “It puts a piece of plastic between the recognition ray and the pod, so that it says, ‘Hey, you’ve got that ink. It’s right here,’” Rogers said.

He decided to commission the Freedom Clip from his supplier — despite the myriad DIY hacks already available on sites such as keurighack.com, most of which involve tape, a scrap of a Keurig-approved label or pink sticky notes — and turned it into a marketing strategy, offering to send it to anyone, anywhere, for free.

With the first 10,000 clips he included three of his company’s pods, but shipping made that too cost-prohibitive to continue.

To date, Rogers has received tens of tens of thousands of requests. One customer, Caroline Levy, said it took her two months to receive her clip due to high demand.

“It went way beyond our expectations – and way beyond our budget,” Rogers said.

But he’s not planning on stopping: “We’re making a lot of friends and we’re getting attention from people who have never heard of us and now have heard of us.”

Club Coffee CEO John Pigott said his own family-run coffee operation is thrilled with Rogers’ clip. “They’ve effectively wedged the market open for those people that want choice,” Pigott said. “There’s nothing wrong with competition. I don’t know why a company [Keurig’s] size is afraid of it.”

Rogers said he pursued the clip and filed lawsuits because he wants Keurig to play fair. “We have spent a great deal of money on legal fees and we have lost major customers where we had a good business going, and we want somebody to pay that back to us,” he said.

The clip comes after a challenging quarter for Keurig, in which sales of its machines failed to meet expectations, in part due to “very public consumer frustration over 2.0 and this issue”, said UBS financial analyst Stephen Powers. “And it put off a lot of would-be consumers who were reading negative online reviews.”

Powers said he expects a greater than 20% drop in Keurig brewer sales this quarter, and expects the dip to continue until the second half of the calendar year.

A huge environmental issue

The clip also has the potential to greatly lessen the environmental impact of Keurig’s machines. That’s because none of Keurig’s K-cups are compostable, and only a fraction of the 5% of pods it produces with recyclable plastic cups are fully recyclable because the lids cannot be recycled and in some cases can’t be separated from the cups. The remaining 95% of K-cups consist of multi-layered, non-recyclable plastic.

That means some part — in most cases all — of every used K-cup goes directly to the landfill. Lined up, end to end, the 9.8bn 2-inch pods sold by Keurig in 2014 alone would encircle the equator 12.4 times, according to Murray Carpenter, author of Caffeinated: How Our Daily Habit Helps, Hurts, and Hooks Us. The estimated 35.6bn pods sold by Keurig since 2007 (Green Mountain Coffee purchased coffee-maker Keurig in 2006) would encircle the globe more than 45 times.

That’s a trail of trash that’s nearly impossible to fathom. (A Nova Scotian coffee company tried in January to dramatize the waste problem caused by single-cup brewers with a 2.5-minute horror film in which K-cups overtake the world.)

These numbers are not likely to drop soon. According to the National Coffee Association, a US trade group, 15% of consumers own single-cup brewers, with an estimated 25% projecting they “probably” or “definitely” will buy one in the future.

Keurig currently offers no minimal-impact alternatives. And that’s where Rogers and Club Coffee, among others, come in. These third-party companies produce pods that are more than 95% compostable. Both expect to roll out 100% compostable pods over the next few months, making them the only environmentally friendly alternatives to K-cups.

Keurig is hardly unaware of criticism about the environmental impact of its products, though a company spokeswoman declined to address whether the Freedom Clip offered consumers a reasonable stopgap measure until Keurig could offer its own less harmful alternative.

“I can’t comment on competitor products,” said Monique Oxender, Keurig’s chief sustainability officer.

In 2013, Keurig announced a goal of making all K-Cups fully recyclable by 2020. But critics say that timeline is too long. Without radical, immediate change, a massive quantity of K-cup waste will enter landfills over the next five years. Oxender said work to meet the deadline has already begun: “It’s not going to be, boom, 2020 and now everything’s fixed. There’s going to be a transition, in which each year we’re going to be able to demonstrate progress.”

Keurig is simultaneously exploring a compostable option, but is concerned about a lack of composting infrastructure in many municipalities, she said. In September 2010, Keurig offered a compostable tea pod but withdrew it from the market by January 2011 because it didn’t keep the product fresh, Oxender said.

It’s also worth noting that even though the K-cups are Keurig’s most visible waste stream, they are only a small share of the company’s overall environmental impact. Oxender said Keurig is also working on increasing energy efficiency and eliminating the last 15% or so of its waste from manufacturing.

Regardless of environmental implications, at the very least the Freedom Clip appears to help level the market for third-party coffee producers. Some analysts predict it could also further dig into Keurig’s ability to form and maintain licensing partnerships because it can no longer ensure exclusivity.

UBS’s Powers, who predicts more complex software features in future Keurig machines, said he doesn’t expect the market to stay level for long: “To the extent that you’re outside the system, you’re going to have to continually play catch-up.”

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