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Shift in Coffee Consumption Trends

Coffee is a primary driver of worker productivity. However, in wake of COVID-19 and work from home ordinances, many individuals were cut off from their daily caffeinated beverage of choice at the office. As individuals working from home seek their daily dose of coffee to boost productivity, we expect to see an increase in demand for specialty coffee machines as employees no longer receive coffee and/or other specialty caffeinated beverages from their workplace.

Per IBIS World, while the number of individuals drinking plain coffee has decreased, the demand for premium espresso-based beverages, Arabica coffee, and single-origin blends has increased. The National Coffee Association (the “NCA”) found that 35.0% of participants surveyed consumed specialty coffee daily and espresso-based beverage consumption has nearly tripled. For the foreseeable future, convenience and coffee brew type will play an increasingly essential role in influencing consumption trends.

Currently, Dr. Pepper Keurig’s K-Cup is the king of convenience – – 77% of their coffee systems segment revenue is derived from K-Cup sales. Over the years, the Keurig trademark has turned into a household name and redefined at home, single-serve coffee brewing. Their coffee machine patents have generated a surge of imitation and increased competition. However, the Keurig machine only offers one type of coffee – – standard coffee. As noted above, consumer preferences are shifting towards espresso and other specialty coffee beverages. Therefore, if Keurig intends to continue dominating the single-serve coffee market, they must adapt to changing consumer trends.

Given Keurig’s reliance on K-Cup revenue, it is potentially in their best interest to externally acquire a portfolio of patents and/or trade secrets pertaining to a single-serve, specialty coffee machine. Best case scenario, this IP portfolio would allow for the brewing of espresso and other specialty coffee beverages from standard K-Cups. In this hypothetical situation, not only would Keurig’s current business model (razor-razorblade) remain intact, but they would also forego the research and development costs associated with developing a single-serve, specialty coffee machine. How much would these patents or trade secrets be worth to Keurig and would Keurig charge a premium for expresso-type K-Cups?

The Keurig brand is based on more than just trademarks. K-Cup technology is an essential part of the current Keurig brand profile, and acquisition or development of additional technology would enhance the brand – – both with retailers and ultimately with consumers.